NACCO Industries
Annual Report 2012

Plain-text annual report

NACCO Industries, Inc. 2012 Annual Report Founder, Frank E. Taplin, Sr. The First 100 Years On February 18, 2013, The North American Coal Corporation, the predecessor company to NACCO Industries, Inc., marked the centennial of its founding and joined an elite group of American companies that have been in business for 100 years or more. The achievement of this milestone is worthy of celebration. Most business start-ups fail, typically within their first five years. Established in 1913 as a regional coal sales brokerage based in Cleveland, Ohio, North American Coal is one of the country’s top 10 coal producers. It has nimbly reinvented its business model several times in response to changing market conditions. Within a decade of its incorporation the one-man brokerage had evolved into a vertically integrated corporation with coal mining, dockyard and railroad subsidiaries. Produced in underground mines in Ohio, Pennsylvania and West Virginia, the company’s bituminous coal fueled trains and stoked industrial and residential furnaces. During the postwar years, North American Coal refocused its energies on providing steam coal to the skyrocketing electrical power industry. With increasingly complex regulations, in the 1970s the company began to withdraw from underground mining in the East and broaden its involvement with surface mining in the West and Southwest. North American Coal moved its corporate headquarters to Dallas, Texas, in 1988. Today North American Coal mines and markets lignite coal primarily as fuel for electrical power generation. In 2012, North American Coal returned to its historic roots with the acquisition of three bituminous coal mines in central Alabama that produce steam coal and metallurgical coal for the steel industry. North American Coal also provides dragline mining services for independently owned limerock quarries in Florida and management and engineering services to assist the development of coal mines overseas. Alfred M. Rankin Jr., the current Chairman, President and CEO of Cleveland-based NACCO Industries, joined the Company in 1989 from Eaton Corporation where he had been Vice Chairman and COO. Rankin, whose grandfather, Frank E. Taplin, Sr., founded North American Coal, became only the second family member in over 50 years to work at the Company. Rankin encouraged the coal company’s expansion into new areas and spearheaded the broader corporate diversification into entirely new businesses in the 1980s. Indeed, the consistent profitability of North American Coal prompted the creation of NACCO Industries as the publicly traded holding company in 1986 to manage the accelerating diversification program. Financed by the coal company’s excess cash and the prudent use of leverage, NACCO acquired subsidiaries in the lift truck and small appliance industries and in the specialty retail field. As each of the companies in NACCO’s portfolio rationalized its manufacturing, sales and distribution capabilities, gained market share, and achieved long-term profit growth under Rankin’s strategic leadership, the parent company grew into a collection of businesses with $3.3 billion of revenues. In 2012, NACCO spun off the $2.5 billion Hyster-Yale Materials Handling subsidiary, a leading global manufacturer of lift trucks. Hyster-Yale is now an independent public corporation traded on the New York Stock Exchange. The timeline to the right captures some of the highlights and turning points in the corporation’s history of opportunity seized and adversity overcome by successive generations of steadfast company owners, insightful directors, visionary executives and dedicated employees. 1913 Coal salesman Frank E. Taplin, Sr. starts a coal brokerage firm called The Cleveland & Western Coal Company in Cleveland, Ohio. 1925 Taplin reorganizes his diverse holdings, which include bituminous coal mines, railroads and Great Lakes dockyards, into The North American Coal Corporation. The new corporation ranks as one of the country’s largest underground mining firms. 1938-1942 In 1942, Henry G. Schmidt, a college- educated engineer, takes over North American Coal’s presidency after Taplin’s unexpected death at age 62 in 1938. 1948 To replace bituminous coal’s waning railroad and domestic heating business, North American Coal begins to pursue long-term supply contracts with electric utility companies c.1945 Powhatan Mine is the first underground operation in Ohio to be fully mechanized. 1956 North American Coal stock is publicly traded for the first time in an over-the-counter offering. 1 1961 The North American Coal Corporation is listed on the New York Stock Exchange. 1976 Having assembled more than four billion tons of lignite reserves, North American Coal enters into contracts with “mine-mouth” power plants through- out the West and Southwest. The groundbreaking for the Falkirk Mine took place on farmland south of Underwood, North Dakota. 1957 North American Coal purchases its first lignite coal mine. A surface operation located in Zap, North Dakota, the mine is renamed Indian Head, after its most popular brand of coal. 1972 North American Coal is awarded a contract to supply fuel in North Dakota to what becomes the country’s first coal gasification plant. 1983-1988 As a result of a corporate diversification program launched in 1983, NACCO Industries, Inc., a new publicly-traded holding company, is formed in 1986. North American Coal becomes a wholly owned subsidiary of NACCO and the Company acquires Yale Materials Handling Corporation in 1985 and Wear-Ever/Proctor-Silex, Inc. and The Kitchen Collection, Inc. in 1988. 1986 Only three years after opening, the Freedom Mine in Beulah, North Dakota, receives the Sentinels of Safety Award for its industry-leading safety record. 1987 The U.S. Office of Surface Mining presents the Falkirk Mine in Underwood, North Dakota, with an Award for Excellence for wetland restoration. To date, North American Coal’s mines have received more than 100 awards for land reclamation. 2 1988 North American Coal’s last under- ground bituminous coal mine is sold, and its corporate headquarters and Western Division office are moved to Dallas, Texas. 1990 Hamilton Beach is acquired and combined with Proctor Silex to form Hamilton Beach/Proctor-Silex. 2011 The Sabine Mine in South Hallsville, Texas, wins the prestigious Sentinels of Safety award for setting the best safety record in the United States for 2010 in the Large Surface Mines Group. 1989 The Hyster Company is acquired and combined with Yale Materials Handling Corporation to form NACCO Materials Handling Group. 2000 North American Coal ranks as the largest lignite producer in the United States. 2012 Recognizing its status as a leading global materials handling company, Hyster-Yale Materials Handling is spun off as an independently traded public company on the NYSE. 3 2013 NACCO Industries and its three continuing subsidiaries are planning for the next 100 years by focusing on both domestic and international growth… NACCO Industries, Inc. at a Glance Principal Businesses 2012 Financial Results Market Positions North American Coal (“NACoal”) Headquarters: Dallas, Texas North American Coal, NACCO’s predecessor company, mines and markets steam and metallur- gical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. North American Coal operates eight 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: $132.4 million Operating profit: $43.2 million Net income: $32.8 million NACoal: North American Coal is among the ten largest coal producers in the United States. Coal is delivered from developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama, primarily to adjacent or nearby power plants. MINING 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®, TrueAir® and Hamilton Beach® Commercial. HBB: Revenues: $521.6 million Operating profit: $35.8 million Net income: $21.2 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 depart- ment 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: $224.7 million Operating loss: $4.6 million Net loss: $3.1 million Kitchen Collection: Kitchen Collection is the nation’s leading specialty retailer of kitchen and related products in factory outlet malls with 312 stores throughout the United States in 2012. 4 NACCO Industries, Inc. is an operating holding company with subsidiaries in the following principal industries: mining, small appliances and specialty retail. In 2012, total revenues were $873.4 million and net income was $108.7 million. Competitive Advantages Financial Objectives Key Initiatives NACoal: • Coal mines provide steady income and cash flow before financing activities and high returns on equity • Steam coal contracts are structured to minimize exposure to market fluctuations of coal prices • 2.2 billion tons of lignite coal reserves, of which approximately 1.1 billion tons are committed to current customers • Outstanding operational and technological mining skills • Highly efficient heavy equipment utilization • Excellent record of environmental respon- sibility and employee safety NACoal: Earn a minimum return on capital employed of 13 percent, attain positive Economic Value Income from all existing consolidated mining operations and any new projects, maintain or increase the prof- itability of all existing unconsolidated mining operations and achieve substantial income growth by developing new mining ventures NACoal: • Actively pursue domestic opportunities for new coal mining projects • Develop a metallurgical coal business platform • Actively pursue international opportunities for new value-added mining services and exports • Expand capabilities in the aggregates market • Pursue a technologically enhanced fuel strategic platform 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: Achieve a minimum operating profit margin target of 10 percent HBB: • Enhance placements in the North American consumer business • Enhance internet sales by providing best-in-class retailer support and increased consumer content and engagement • Achieve further penetration of the global Commercial market through an enhanced global product line • Expand internationally in the emerging Asian and Latin American markets • Enter the “only-the-best” market with a strong brand and broad product line 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 Kitchen Collection: • Grow comparable store sales and create a solid store portfolio • Enhance sales volume and profitability through refinement of store formats and specific product offerings • Improve inventory efficiency and store inventory controls • Grow the number of Kitchen Collection® stores through identification of the best positions in the best outlet malls • Explore growth opportunities in textiles and gourmet foods, as well as in e-commerce 5 Selected Financial and Operating Data NACCO Industries, Inc. and Subsidiaries Year Ended December 31 2012(1) 2011(1)(2) 2010(1)(2) 2009(1)(2)(3) 2008(1)(2)(3)(4) (In millions, except per share data) Operating Statement Data: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 873.4 $ 67.5 $ 790.4 $ 64.1 Income (loss) from continuing operations . . . . . . . . . . . . . . Discontinued operations, net-of-tax(1)(3). . . . . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.2 66.5 $ 108.7 $ 79.5 82.6 $ 162.1 $ 885.6 $ 94.2 $ 47.1 32.4 $ 79.5 $ 835.4 $ 90.3 $ 51.6 (20.5) $ 31.1 $ 840.8 $ (45.5) $ (63.9) (373.7) $ (437.6) Basic Earnings (Loss) per Share: Income (loss) from continuing operations . . . . . . . . . . . . . . Discontinued operations, net-of-tax(1)(3). . . . . . . . . . . . . . . . . . Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted Earnings (Loss) per Share: Income (loss) from continuing operations . . . . . . . . . . . . . . Discontinued operations, net-of-tax(1)(3). . . . . . . . . . . . . . . . . . Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . $ 5.04 7.93 $ 12.97 $ 9.49 9.85 $ 19.34 $ 5.66 3.89 $ 9.55 $ 6.22 (2.47) $ 3.75 $ (7.71) (45.13) $ (52.84) $ 5.02 7.90 $ 12.92 $ 9.46 9.82 $ 19.28 $ 5.65 3.88 $ 9.53 $ 6.22 (2.47) $ 3.75 $ (7.71) (45.13) $ (52.84) Per Share and Share Data: Cash dividends(5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market value at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity at December 31. . . . . . . . . . . . . . . . . . . $ 5.378 $ 60.69 $ 33.69 Actual shares outstanding at December 31. . . . . . . . . . . . . Basic weighted average shares outstanding . . . . . . . . . . . . Diluted weighted average shares outstanding . . . . . . . . . . 8.353 8.384 8.414 Balance Sheet Data at December 31: Cash(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 139.9 $ 776.3 $ 135.4 $ 281.4 $ 2.120 $ 89.22 $ 68.81 8.374 8.383 8.408 $ 153.7 $ 1,808.7 $ 74.5 $ 576.2 $ 2.085 $ 108.37 $ 53.69 8.333 8.328 8.344 $ 92.4 $ 1,670.9 $ 139.8 $ 447.4 $ 2.068 $ 49.80 $ 47.82 8.294 8.290 8.296 $ 93.0 $ 1,497.4 $ 148.4 $ 396.6 $ 2.045 $ 37.41 $ 43.05 8.286 8.281 8.281 $ 80.2 $ 1,702.3 $ 170.6 $ 356.7 (1) During 2012, NACCO spun off Hyster-Yale, a former subsidiary. The results of operations of Hyster-Yale for all periods shown have been reclassified to reflect Hyster-Yale’s operating results as discontinued operations. (2) 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 provided 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 this matter were $2.8 million, $18.8 million, $1.1 million and $0.8 million in 2011, 2010, 2009 and 2008, respectively. (3) 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. (4) 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, of which $84.6 million is included in continuing operations and $351.1 million is included in discontinued operations. (5) Cash dividends in 2012 include a one-time special cash dividend of $3.50 per share. The $0.25 dividend paid in the fourth quarter of 2012 was the first regular quarterly dividend following the spin off of Hyster-Yale. 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 U.S. generally accepted accounting principles (“GAAP”) appear on page 7 and page 24. For certain pre-tax disclosures included in the “To Our Stockholders” letter beginning on page 8, 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. 6  Year Ended December 31 2012(1) 2011(1)(2) 2010(1)(2) 2009(1)(2)(3) 2008(1)(2)(3)(4) (In millions, except employee data) Cash Flow Data: Operating Activities North American Coal Corporation . . . . . . . . . . . . . . . . . . . . Hamilton Beach Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provided by operating activities from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25.9 15.0 6.3 (31.6) $ 50.2 27.4 3.8 (7.0) $ 50.4 35.5 5.4 (41.8) $ 31.7 24.2 4.9 39.8 $ 20.9 18.0 (6.4) (2.6) $ 29.9 $ 49.5 $ 15.6 $ 100.6 $ 74.4 Investing Activities North American Coal Corporation . . . . . . . . . . . . . . . . . . . . Hamilton Beach Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provided by (used for) investing activities from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . Cash Flow before Financing Activities(6) North American Coal Corporation . . . . . . . . . . . . . . . . . . . . Hamilton Beach Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kitchen Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NACCO and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow before Financing Activities from continuing operations(6) . . . . . . . . . . . . . . . . . . . . . . . . . . Used for financing activities from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Data: Adjusted EBITDA(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (56.3) (3.2) (3.9) (0.3) $ (10.7) (3.7) (2.3) (0.1) $ 6.9 (2.2) (2.7) 0.7 $ (6.5) (2.1) (1.1) (14.0) $ (15.6) (5.7) (6.0) (6.3) $ (63.7) $ (16.8) $ (2.7) $ (23.7) $ (33.6) $ (6.1) 24.2 (0.1) (7.3) $ 21.0 20.5 2.6 39.7 $ 32.8 12.8 3.6 (30.9) $ 43.9 33.4 4.3 (55.8) $ 5.3 12.3 (12.4) (8.9) $ 10.7 $ 83.8 $ 18.3 $ 25.8 $ (3.7) $ (24.5) $ (22.5) $ (18.9) $ (45.8) $ (70.1) $ 81.9 $ 79.9 $ 110.3 $ 107.0 $ 53.1 Total employees at December 31(3)(8) . . . . . . . . . . . . . . . . . . . . 4,300 4,000 3,900 4,100 3,800 (6) Cash Flow before Financing Activities is equal to net cash provided by operating activities less net cash used for investing activities. (7) 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. GAAP. 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 discontinued operations, Applica settlement and litigation charges, goodwill and other intangible assets impairment charges and income taxes plus net interest expense and depreciation, depletion and amortization expense. Adjusted EBITDA is not a measurement under U.S. GAAP 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. GAAP are presented above. A reconciliation of cash flow provided by operating activities to Adjusted EBITDA is presented below. (8) Includes employees of Reed Minerals in 2012 and the unconsolidated mining subsidiaries for all years presented and excludes employees of Hyster-Yale and Red River for all years presented. Year Ended December 31 2012(1) 2011(1)(2) 2010(1)(2) 2009(1)(2)(3) 2008(1)(2)(3)(4) (In millions) Reconciliation of net cash provided by operating activities from continuing operations to EBITDA(7) Net cash provided by operating activities from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . Change in working capital items . . . . . . . . . . . . . . . . . . . . . . . . Applica settlement and litigation costs . . . . . . . . . . . . . . . . . . Gain on sale of assets and businesses . . . . . . . . . . . . . . . . . . . Difference between deferred income taxes and total tax provision (benefit) . . . . . . . . . . . . . . . . . Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted EBITDA(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.9 (14.3) 12.8 $ 107.0 32.9 (7.4) 8.4 $ 79.9 1.2 (14.2) 5.9 $ 81.9 $ 15.6 29.3 18.8 0.2 $ 100.6 1.6 (57.2) 1.0 6.0 29.9 10.5 $ 110.3 $ 49.5 21.4 1.1 8.6 $ 74.4 7.8 — 6.8 $ 29.9 14.2 0.8 — 1.6 (4.9) 11.5 $ 53.1 Calculation of Adjusted EBITDA(7) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . Applica settlement and litigation costs . . . . . . . . . . . . . . . . . . Goodwill and other intangible assets impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation, depletion and amortization expense . . . . . Adjusted EBITDA(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 108.7 (66.5) — — 15.8 6.1 (0.2) 18.0 $ 81.9 $ 162.1 (82.6) (57.2) — 32.8 8.7 (0.3) 16.4 $ 79.9 $ 79.5 (32.4) 18.8 — 15.6 10.8 (0.3) 18.3 $ 110.3 $ 31.1 20.5 1.1 — 24.1 13.2 (0.4) 17.4 $ 107.0 $ (437.6) 373.7 0.8 84.6 3.2 14.7 (3.2) 16.9 $ 53.1 7 MINING To Our In 1913, Frank E. Taplin, Sr., As a diversified holding company, pictured on the front of this annual NACCO grew to become a Fortune report, started The Cleveland & Western 1000 business with revenues of $3.3 Coal Company, the predecessor of The billion in 2011. North American Coal Corporation, as a Fittingly, during its 100th year, the one-man brokerage firm, selling other Company transformed itself yet again. companies’ coal. That original business NACCO’s commitment to creating has been transformed many times shareholder value was demonstrated over the past 100 years to become the in September 2012 when the Company NACCO Industries, Inc. of today. spun off its materials handling business By 1916, Mr. Taplin’s small as an independent public company, brokerage had evolved into an under- Hyster-Yale Materials Handling, Inc., ground mining company in Southern to NACCO stockholders. As a result, the Ohio that would, in 1926, become The financial information in this Annual North American Coal Corporation. A Report on Form 10-K has been reclassi- dual focus on safety and innovation fied to reflect Hyster-Yale’s pre-spin would see the company transformed operating results as discontinued oper- from an Eastern underground miner ations and all further discussions in this of bituminous coal to, as the 20th cen- letter relate to income from continuing tury closed, the largest lignite surface operations. Today, NACCO remains miner in the United States. A corpo- a strong, multi-industry company rate diversification program launched with leading businesses in the mining, in the early 1980s led to the creation small appliances and specialty retail of NACCO Industries, Inc. in 1986 industries, and is well positioned to and the Company’s entry into other support its individual businesses in businesses – a controlling investment the years ahead. in the lift truck industry beginning in The spin-off was not the only 1985 and an acquisition in the house- substantial change to the Company’s wares industry beginning in 1988. business model during 2012. Late in 8 Subsidiary Financial Objectives • NACoal: Earn a minimum return on capital employed of 13 percent, attain positive Economic Value Income from all existing consolidated mining operations and any new projects, maintain or increase the profitability of all existing unconsoli- dated mining operations and achieve substantial income growth by developing new mining ventures. • HBB: Achieve a minimum operating profit margin of 10 percent. • Kitchen Collection: Achieve a minimum operating profit margin of 5 percent. • All businesses: Generate substantial cash flow before financing activities. Stockholders the third quarter, The North American consumer market continued to be soft revenues for NACCO grew to $873.4 Coal Corporation (“NACoal”) under- as the mass-market consumer, which is million in 2012 from $790.4 million in went a transformation of its own by Hamilton Beach Brands’ (“HBB”) and 2011, with the increase primarily re-entering the bituminous coal business Kitchen Collection’s primary customer, driven by increased deliveries at NACoal through the acquisition of companies remained under pressure in 2012. and higher sales volumes of higher- which comprise the operations of Reed Additionally, customer visits to stores priced products at HBB. Income from Minerals, an Alabama producer of steam in both indoor and outlet malls dropped continuing operations decreased to $42.2 and metallurgical coal. With this acqui- in 2012, especially during the fourth- million, or $5.02 per diluted share, in sition, NACoal is positioned to expand quarter holiday-selling season. In 2012 from $79.5 million, or $9.46 per in the domestic and international met- this highly challenging environment, diluted share, in 2011. However, income allurgical coal business, in addition to revenues and profits improved at HBB from continuing operations for 2011 the growth expected in its domestic as a result of increased placements and included the receipt of $60.0 million, or lignite mining operations. promotions at its largest customers. $39.0 million after taxes of $21.0 million, Coal deliveries at NACoal’s lignite Kitchen Collection continues to make related to the Applica litigation settle- mines increased in 2012 as more elec- adjustments to attract customers but ment in 2011. This settlement was trical demand at customers’ power was not able to overcome the unfavor- partially offset by litigation costs of $2.8 plants translated into higher customer able effect of the decline in customer million, or $1.8 million after taxes of $1.0 requirements during the first half of visits to its stores. million, also incurred in 2011. Excluding the year. However, an extended power Given 2012 market conditions, the the settlement and the corresponding plant outage in the latter half of the acquisition of Reed Minerals and gains litigation costs, adjusted income from year tempered those improvements. on sales of assets at NACoal, revenues continuing operations(1) was $42.3 Limerock customers increased require- increased and strong operating results million, or $5.03 per diluted share for ments as a result of significant demand were achieved at HBB and NACoal but the year ended December 31, 2011. related primarily to one large project in operating results were disappointing In 2012, strong returns on capital the Florida construction market. The at Kitchen Collection. Consolidated employed(2) (“ROTCE”) on a net debt (1) “Consolidated adjusted income from continuing operations” in this letter refers to income from continuing operations that exclude the Applica settlement and related litigation costs. (For reconciliations from GAAP results to the adjusted non-GAAP results, see page 24.) Management believes a discussion of adjusted income from continuing operations is more reflective of NACCO’s underlying business operations and assists investors in better understanding the results of operations of NACCO and its subsidiaries. (2) See page 24 for the calculation of return on capital employed. 9 basis were realized at NACoal (17.3 of NACCO Class A common stock or percent) and HBB (29.4 percent) but Class B common stock owned. Post- Kitchen Collection had a negative return spin, NACCO’s stock opened at $41.50 of 6.1 percent. The Company generated and achieved an average price of $53.31 cash flow before financing activities from for the fourth quarter of 2012. Hyster- continuing operations of $10.7 million Yale’s stock (NYSE: HY) opened at in 2012 as strong positive cash flow $40.00 per share on its first day of before financing activities at HBB trading and achieved an average price was offset by negative cash flow before of $42.74 for the fourth quarter of 2012. financing activities at NACoal, primarily Combining the value of one NACCO due to the cash paid of $69.3 million for share with the value of two Hyster-Yale the acquisition of Reed Minerals. Cash shares, in line with the distribution in flow before financing activities from the spin-off, equals a combined opening continuing operations of $83.8 million value of $121.50 per share on the first generated in 2011 included the receipt day after the spin-off and $138.79 per of $60 million for the Applica litigation share on average for the fourth quarter. settlement. The Company’s cash posi- Share prices for NACCO and Hyster- tion at December 31, 2012 was strong Yale on March 4, 2013 were $57.91 and at $139.9 million despite paying both a $51.93, respectively, equaling $161.77 special dividend of $3.50 per share and per share on a similarly calculated “one a regular quarterly dividend of $0.25 NACCO share plus two Hyster-Yale per share to stockholders on December shares” basis. 14, 2012, which used $31.4 million of NACCO’s objective is to realize cash. Consolidated debt as of December improved valuation over time as the 31, 2012 increased to $177.7 million Company executes its strategies for from $148.2 million as of December 31, growth and to reach its subsidiaries’ 2011, largely as a result of the Reed financial targets. In addition, in Novem- Minerals acquisition. NACCO expects ber 2012, NACCO’s Board of Directors strong cash flow before financing activ- approved an extension of the Company’s ities from NACoal and HBB in 2013 stock repurchase program through and modest cash flow before financing December 31, 2013. The stock repur- activities at Kitchen Collection. chase program permits the repurchase On the first trading day of 2012, of up to $50 million of the Company’s NACCO’s stock price closed at $91.43. outstanding Class A common stock. The stock reached a high of $129.20 in The share repurchase program does July 2012 following the announcement not require the Company to acquire of the spin-off of the materials handling any specific number of shares. As of business, and closed on September December 31, 2012, NACCO had pur- 28, 2012 at $125.41. The spin-off was chased a total of 75,074 shares since the completed after the market closed on buyback’s inception, including 30,851 Subsidiary Financial Objectives Each of NACCO’s subsidiary com- panies has specific long-term financial objectives (described on page 8). In 2012, NACoal met its ROTCE objective but fell short of its other objectives. Continued improvements in perform- ance at NACoal’s Mississippi Lignite Mining Company (“MLMC”) and the integration and expected growth of Reed Minerals are anticipated to help NACoal achieve all of its objectives. HBB had sound operating profit but fell below its long-term operating profit margin target. Kitchen Collection fell well below its operating profit margin target and declined substantially compared with 2011. Looking forward, HBB is expected to continue to improve results but will need additional sales volumes through execution of its strate- gic initiatives, or possibly through a synergistic partnership or acquisition to reach its target. Kitchen Collection’s goal will be difficult to achieve if the Le Gourmet Chef ® stores continue to struggle and customer visits to outlet malls fail to recover. The Kitchen Collection® store format is expected to continue to produce sound results over time but the Le Gourmet Chef ® stores are not expected to achieve their target objective until sales volumes increase and additional underperforming stores have been closed. As each of NACCO’s subsidiaries executes its strategic initiatives, the Company expects that its subsidiaries will be positioned to achieve or exceed their long-term September 28th when the Company shares purchased before the spin-off financial goals. distributed one share of Hyster-Yale at an average price of $85.59 per share Class A common stock and one share and 44,223 shares purchased after the of Hyster-Yale Class B common stock spin-off at an average price of $58.76 to NACCO stockholders for each share per share. 10 A truck/shovel operation works into the night to uncover coal at the Mississippi Lignite Mining Company’s Red Hills Mine in Mississippi. Mining North American Coal $1.5 million of operating profit during largely related to long-term incentive 2012 Results. NACoal has deliv- the balance of the year. Additional compensation associated with achieving ered strong, stable performance over the years. 2012 was no exception. In increases in net income were provided significant new business opportunities by MLMC as deliveries increased to for North American Coal, and acquisi- addition, a few significant transactions the customer’s power plant which tion-related costs, as well as higher contributed to the improved results ran more consistently in 2012 than income tax expense, mostly offset these in 2012. During the year, NACoal sold in 2011, by increased deliveries at the improvements. As a result, NACoal certain assets which resulted in pre-tax limerock dragline mining operations reported net income in 2012 of $32.8 gains of approximately $7.0 million. Also, due to customer demand for supply to million compared with $29.4 million on August 31, 2012, NACoal acquired a large construction project in southern in 2011. Reed Minerals, which resulted in an Florida, and by higher royalty income. While NACoal generated cash flow increase in deliveries and contributed Higher employee-related expenses, from operations of $50.2 million in 2012, 11 Much of the development work at the new Liberty Mine in Mississippi involves assembling mining equipment, such as this dragline that will eventually be used to remove overburden. cash flow before financing activities programs provide a solid foundation for Limerock deliveries are expected to was actually negative at $6.1 million all of the company’s coal and limerock decrease in 2013 compared with 2012 predominantly due to several unique mining operations. NACoal expects as customer requirements are expected transactions in 2012. These included steady operating performance at its to decline moderately because the large cash paid of $69.3 million to acquire coal mining operations in 2013. Steam construction project that increased Reed Minerals, the purchase of two coal tons delivered in 2013 are expected 2012 requirements will be completed draglines for $26.8 million, the sale of to increase over 2012 at both the con- in early 2013 and the overall Florida two draglines for $31.2 million and the solidated and unconsolidated mining construction market remains weak. receipt of $14.4 million in payment for operations provided end-use customers Demery Resources Company’s Five a long-term note related to a dragline achieve currently planned power plant Forks Mine commenced delivering coal sold in 2009. Cash flow before financing operating levels. NACoal is optimistic to its customer in 2012 and is expected activities was $21.0 million in 2011. that the power plant served by MLMC to increase production in 2013, with will build on its operating improvements full production levels expected to be Outlook for 2013. While NACoal in 2012 and run more consistently in reached in late 2015 or 2016. Royalty will work to integrate Reed Minerals 2013. However, metallurgical coal sales income is expected to be lower in 2013 in 2013, the company will remain for Reed Minerals are expected to be compared with 2012. focused on safety, environmental com- below the company’s initial expecta- NACoal expects to continue to pliance and continuous improvement tions as demand for steel is down and generate modest income in 2013 from programs. These well-established customers are reducing inventories. the four unconsolidated mines which 12 North American Coal’s Liberty Mine is being developed adjacent to Mississippi Power Company’s new Kemper County Energy Facility currently being built in Mississippi. The new mine, once completed, will use a variety of equipment to uncover and mine the lignite coal in the area. are in development. Liberty Fuels Real Fuels expects initial deliveries in a permit for its Otter Creek reserve in is eventually expected to produce the third quarter of 2014, and expects North Dakota in preparation for the approximately 4.5 million tons of lignite to mine approximately 2.7 million tons anticipated construction of a new mine. coal annually for Mississippi Power of coal annually when full production is Overall, North American Coal Company’s new Kemper County achieved. In addition, in October 2012, expects net income in 2013 to decrease Energy Facility currently being built North American Coal’s subsidiary, slightly from 2012 primarily due to the in Mississippi. The project is on track Coyote Creek Mining Company, entered absence of pre-tax gains of approxi- for initial coal deliveries in mid-2014. into a new agreement with the co- mately $7.0 million from asset sales In February 2013, the mining permit owners of the Coyote Station generation during 2012. Excluding the effect of needed to commence mining opera- plant to develop a lignite mine in Mercer the asset sales, operating results are tions at the Caddo Creek Resources County, North Dakota. Coyote Creek expected to increase compared with Company’s project in Texas was issued. Mining Company expects to deliver 2012 mainly as a result of increased Caddo Creek expects to mine approxi- approximately 2.5 million tons of coal deliveries and lower operating expenses. mately 650,000 tons of coal annually annually beginning in May 2016. Cash flow before financing activities for with initial deliveries expected in early North American Coal also expects 2013 is expected to be higher than 2012, 2014. In January 2013, the mining to continue to incur additional expenses but not at the levels of 2011 due to an permit needed to commence mining in 2013 to pursue new project opportu- anticipated increase in capital expendi- operations at the Camino Real Fuels nities. In particular, the company tures to support operating improve- project in Texas was issued. Camino continues to move forward to obtain ments at the Reed Minerals operations. 13 Longer-Term Perspective. The company is also pursuing which balances affordability, energy In 2012, NACoal’s Sabine Mine, opportunities to expand through mining needs and environmental responsibility. which opened in 1984, delivered its activities that serve the international The company believes that coal must 100,000,000th ton of coal, a tribute to mining arena, such as new opportunities remain an integral part of the nation’s the company’s objective of being a to provide value-added mining services total energy mix for the United States to long-term partner with its customers. outside the United States, similar to its continue to be competitive in a global NACoal expects to continue its record of current relationship in India. economy. NACoal will continue to moni- operational excellence in safety, environ- In addition, the company is inves- tor pending regulations and legislation mental stewardship and production at tigating a number of non-coal mining and will work to take a leadership role each of its mining operations and, over opportunities, both domestically and to help ensure that reasonable actions time, to deliver profitability that exceeds internationally. are undertaken by the government. its financial objectives. Finally, strategic growth may Importantly, NACoal expects that cur- NACoal’s vision is to continue to be come from projects developed out of rently anticipated changes to domestic a leading low-cost miner of coal for its new technologies that utilize coal, such environmental regulatory requirements customers and to provide selected value- as coal-to-liquids, integrated gasifica- will be effectively addressed by working added mining services for companies in tion combined cycle power generation, with its customers. the aggregates business. NACoal expects and production of alternative fuels Overall, NACoal anticipates reason- to continue to pursue opportunities made from coal, as well as other clean able prospects for growth over the next for new domestic coal mining projects. coal technologies and non-traditional few years as the company’s new mines However the prospects for the develop- products derived from coal. NACoal currently in development reach full ment of new coal fired power generation is working with a range of technical production. This enhanced financial in the United States are uncertain at experts and potential partners who performance is expected to provide a best. As a result, the company has put might help develop projects based on solid base for NACoal to attain its in place four additional strategic growth these advanced technologies. However, strategic objectives and achieve its initiatives to help achieve this objective. any significant growth in domestic long-term financial targets. The company considers its acquisi- opportunities is largely dependent on tion of Reed Minerals as the first step in the United States adopting a balanced a metallurgical coal strategic initiative energy policy in which coal continues which includes coal exports. NACoal’s to play a key role, including through full integration of Reed Minerals will these new coal technologies. increase capacity and lower costs, NACoal believes that a large providing enhanced opportunities to majority of consumers in the United increase both domestic and export sales. States want a domestic energy policy At left and top left to right: Shovels load overburden into one of a fleet of dump trucks, which carry the overburden to areas of the mine that are being reclaimed. A look beyond reclaimed land used for growing pine trees to the mining pit at the Red Hills Mine in Mississippi. One of North American Coal’s environmental specialists tests water samples in a reclaimed wetland. Bottom: The Kress haul truck that delivered the 100,000,000th ton of coal at North American Coal’s Sabine Mine. 15 Housewares Hamilton Beach Brands sales volumes in the U.S. consumer improved cash flow before financing 2012 Results. HBB came back business than in 2011. Sales of higher- activities of $24.2 million compared strong in 2012 following a challenging margin products throughout the year with $20.5 million in 2011. 2011. While weak consumer demand in and moderating commodity costs in 2011 continued to reduce sales volumes the back half of the year allowed the Outlook for 2013. The overall in the first half of 2012, primarily at company to offset some of the margin retail market for higher-end small the U.S. mass-market consumer retail- pressure created by higher product costs kitchen appliances has recently shown ers, HBB’s success at selling products in the first half of 2012 and increased some signs of softening while the with higher price points offset these volume declines in the latter part of employee-related costs, resulting in middle-market portion in which HBB HBB maintaining its operating profit participates is relatively flat. HBB’s the year. The company gained further margin compared with 2011. Overall, target consumer, the middle-market ground during the fourth-quarter revenues increased to $521.6 million in mass consumer, continues to struggle holiday-selling season with strong place- 2012 from $493.0 million in 2011 and with financial and economic concerns, ments and promotions at key retailers net income improved to $21.2 million and consumer confidence does not that increased volumes substantially, in 2012 from $18.4 million in 2011. appear to be as high as it was in 2012. ending 2012 with substantially higher In addition, HBB ended the year with As a result, sales volumes in the middle- Left: Hamilton Beach Brands’ newest products include, clockwise from top: Hamilton Beach® BrewStation® 12-cup coffeemaker with removable reservoir, Hamilton Beach® Big Mouth® Pro juice extractor, Hamilton Beach® Stay or Go® 4-quart slow cooker, Hamilton Beach® Smoothie Smart™ Blender and Hamilton Beach® Digital Simplicity™ Rice Cooker and Steamer. Above: New display layouts and signage at Kitchen Collection’s Le Gourmet Chef® store in Aurora, Ohio. Le Gourmet Chef® stores feature brand-name kitchenware and gourmet foods. 17 market portion of the U.S. small kitchen sumers to cook breakfast sandwiches Longer-Term Perspective. appliance market are projected to grow quickly at home. These products, as well HBB’s vision is to be the leading only moderately in 2013 compared as other new product introductions in designer, marketer and distributor of with 2012. International and commer- the pipeline for 2013, are expected to small electric household and commercial cial product markets are expected to increase both revenues and operating appliances sold worldwide under strong continue to grow reasonably in 2013 profit. As a result of these new products, brand names and to achieve profitable compared with 2012. the company’s improving position in growth from innovative solutions that HBB continues to focus on strength- commercial and international markets, improve everyday living. To achieve this ening its North American consumer and execution of the company’s strategic vision, HBB will focus on five strategic market position through product inno- initiatives, HBB expects to increase growth initiatives, each of which is vation, promotions, increased placements volumes and revenues in 2013 compared described separately below: and branding programs, together with with 2012 at more than the 2013 mar- 1. Enhancing placements in the appropriate levels of advertising for the ket forecast rate of increase. North American consumer business company’s highly successful and inno- Overall, HBB expects full-year 2013 through consumer-driven innovative vative product lines. Particular focus is net income to be comparable to 2012 as products and strong sales and market- being placed on single-serve coffee prod- anticipated increases in profit from ing support. The company’s product ucts such as The Scoop® and FlexBrewTM. increased revenues are forecasted to be and placement track record is strong HBB expects The Scoop®, the Two-Way largely offset by expected increases in due to innovation processes centered Brewer and the DurathonTM iron product operating expenses to support HBB’s on understanding and meeting end-user line, all introduced in late 2011, as well strategic initiatives. Product and trans- needs. In the North American consumer as the FlexBrewTM, launched in late portation costs are currently expected market, HBB believes it has a stronger 2012, to continue to gain market posi- to remain comparable to 2012. HBB and deeper portfolio of new products tion as broader distribution is attained continues to monitor commodity costs than its competitors. HBB expects its over time. The company is continuing closely and will adjust product prices product pipeline in 2013 and beyond to to introduce innovative products in and product placements, as appropri- be at or above already increased 2012 several small appliance categories. In the ate, if these costs increase more than levels, with strong brands and best-in- first quarter of 2013, HBB expects to anticipated. HBB expects 2013 cash class products. launch the Hamilton Beach® Breakfast flow before financing activities to be 2. Enhancing Internet sales by Sandwich Maker, which provides an moderately lower than in 2012 due to providing best-in-class retailer support innovative and convenient way for con- increased working capital needs. and increased consumer content and engagement. In the past few years, Internet sales have grown significantly in all product areas. Small kitchen appliances are no exception. During 2012, 18 percent of small kitchen appli- ances were purchased online. Retailers are looking for partners that can pro- vide not only products, but also new capabilities and support for promotion, marketing and distribution programs. As consumers’ shopping habits evolve to rely more on the Internet, HBB is focused on being the leading partner to its retailers and by increasing engage- ment with end users by enhancing its Left to Right: Melitta 10-cup thermal coffeemaker, the newest version of the Durathon™ Digital Iron with Durathon™ Nonstick Soleplate, Hamilton Beach® Tournant™ high-performance commercial food blender and The Scoop® single-cup coffeemaker. 18 programs designed to make HBB the preferred source for small appliances. 3. Achieving further penetration of the global Commercial market through a commitment to an enhanced global product line for chains and distributors serving the global food service and hospitality markets. HBB expects to enhance its global commercial product line, particularly with new innovative blending and mixing platforms, and strengthen food service and hospitality options in order to achieve further market penetration in this segment. Over the near term, the company anticipates continuing to incur costs to build distribution capabilities and increase the number of sales repre- sentatives in the international food service market. 4. Expanding internationally in the emerging Asian and Latin American markets by offering products designed specifically for those market needs and by expanding distribution channels and sales and marketing capabilities. HBB’s historical strength has been in the domestic consumer goods market, with only 24 percent of total sales in 2012 occurring outside the United States. The company’s objective is to increase international sales to 35 to 45 percent of total sales. HBB’s efforts will focus on continuing to expand in Mexico, Canada and Central America, as well as entering the emerging markets of China, India, Brazil and other South American countries. To achieve this growth, the company is working to understand local consumers’ needs and developing products to meet those needs, especially in the mid- to high-end segments of these markets. In addition, HBB expects to work with local partners in certain targeted countries. Hamilton Beach Brands’ newest Proctor Silex® products include, clockwise from top: Proctor Silex® programmable 12-cup coffeemaker, Proctor Silex® 10-speed blender and Proctor Silex® 4-quart slow cooker. 5. Entering the “only-the-best” can be distributed in high-end specialty market with a strong brand and broad stores and on the Internet. product line. HBB is planning to enter HBB believes these five strategic the “only-the-best” high-end small initiatives provide a solid set of strategies kitchen appliance market in selected for profitable growth. The company is segments. The company is currently optimistic that it will be able to build working with Jamba Juice® to create on momentum achieved in distribution a product line focused on blending in 2012, and make continued progress and juicing. HBB also is seeking other in expanding in selected international partners to create additional lines that consumer and global commercial 19 markets. The company believes it is well- higher-end goods focusing on cooking Outlook for 2013. Prospects positioned to continue its leadership and entertaining themes, continued to for 2013 remain uncertain, but are position in the small kitchen appliances struggle in 2012. A higher average sales expected to improve over 2012 levels. industry and to move toward achieving transaction value did not make up However, the middle-market consumer its near-term financial objective of 8 for fewer transactions due to reduced remains under pressure due to financial percent operating profit margin and customer visits. and economic concerns, and those its long-term financial objective of a Revenues increased to $224.7 concerns are expected to continue to minimum 10 percent operating profit million in 2012 from $221.2 million in dampen consumer sentiment and limit margin in the years ahead. 2011 as sales from new stores and 34 consumer spending levels for Kitchen Kitchen Collection the fourth quarter offset lost revenues As a result, Kitchen Collection expects 2012 Results. Over the course of from closed stores. However, operating 2013 revenues to be comparable to 2012, Kitchen Collection made signifi- results were very disappointing as a 2012, although the company expects seasonal stores that were open only in Collection’s target customer in 2013. cant operational strides by improving its Kitchen Collection® and Le Gourmet Chef ® store formats. Unfortunately, these operational improvements did not translate into financial improvements in 2012. Improved comparable store results and new store sales in the first half of the year were offset by a very difficult second half. Inclement weather and continued financial pressures weighing on middle-market consumers reduced customer visits to outlet malls in general and to the company’s stores, especially in the fourth quarter. Further, the costs to remodel and reformat stores and a $0.7 million impairment charge for leasehold improvements at under- performing stores offset the favorable to maintain a lower number of stores through much of 2013 than in 2012, since a number of stores will be closed early in the year and the majority of new ones won’t be opened until the latter half of the year. Overall, Kitchen Collection expects modest net income for the 2013 full year and positive cash flow before financing activities compared with a net loss and essentially break even cash flow before financing in 2012. Enhanced sales per store and product margins are expected as a result of the improvements in store formats and layouts and refinements of promotional offers and merchandise mix at both the Kitchen Collection® and Le Gourmet Chef® stores. During results of opening new stores. result of the factors previously described 2012, Kitchen Collection reformatted The Kitchen Collection® stores, and lower margins due to the liquida- many of its stores to promote a value which sell a wide variety of basic kitchen tion of a significant amount of inven- and trend message at the front of its items, generated an increased average tory as stores were closed. As a result, stores, which is expected, with some sales transaction value. However, the Kitchen Collection reported a net loss further adjustments, to drive an number of customer visits declined. of $3.1 million in 2012 compared with increased number of customers into Additionally, lower gross margins and net income of $1.1 million in 2011 and its locations. The company invested higher employee-related costs reduced had negative cash flow before financing significant resources implementing Kitchen Collection® store income activities of $0.1 million compared format changes at all of its Le Gourmet compared with the prior year. The with positive cash flow before financing Chef® stores in the first half of 2012 Le Gourmet Chef® stores, which sell activities of $2.6 million in 2011. and completing the remodeling of a Above: A free-standing display of products at the Le Gourmet Chef® store in Aurora, Ohio, makes it easier for customers to shop and select products. Right: The newly formatted Kitchen Collection® store in Jeffersonville, Ohio, features bump outs to improve the display of products. 20 total of 82 Kitchen Collection® stores expected to recur in 2013. As these new certain traditional mall types for over the course of 2012. Feedback to formats gain traction, they are expected consumers seeking a large selection date on these changes is favorable, but to improve margins and income in 2013. of unique, high quality products at reduced traffic in 2012 made it difficult an exceptional value. The company’s to determine their longer-term impact. Longer-Term Perspective. core strength is its Kitchen Collection® In addition, these changes resulted in Kitchen Collection’s vision is to be the store format in outlet malls, but it has higher up-front costs during 2012 and leading specialty retailer of kitchen, two solid store formats and plans to the liquidation of a substantial amount home entertaining and gourmet food leverage this strength with strong, of inventory, both of which are not products mainly in outlet malls and separate brand identities for each. However, with an operating margin significantly lower than its target, the company is focused on ways to move the business back to a significantly more profitable position and has identified initiatives that are expected to move the company closer to, and ultimately achieve, its long-term financial target of 5 percent operating profit margin. Kitchen Collection plans to focus on comparable store sales growth by enhancing sales volume and profitability through refinement of its formats and value and trend messaging, and pres- entation and ongoing review of the specific product offerings, merchandise mix, store displays and appearance, while improving inventory efficiency and store inventory controls. The company will also continue to evaluate and, as lease contracts permit, close underperforming and loss-generating stores, principally Le Gourmet Chef® stores. In the near term, Kitchen Collection expects to concentrate its growth on increasing the number of Kitchen Collection® stores, with the store expansion program tied to identi- fying the best positions in the best outlet malls for Kitchen Collection® stores. At such time as adequate profit prospects are demonstrated by the Le Gourmet Chef® format, the com- pany’s expansion focus will shift to increasing the number of these stores Kitchen Collection® provides a wide variety of specialty kitchen-related products, as shown in this new bakeware display at the Kitchen Collection® store in Jeffersonville, Ohio. as well. 22 Kitchen Collection also expects appropriate changes. Each subsidiary In closing, we would like to thank to explore other growth opportunities. has benefited from previous programs all of our subsidiaries’ customers, retail- The company expects to increase the put in place which, when combined with ers and suppliers, and all of NACCO’s role of regional assortments by tailoring the new strategic growth initiatives stockholders, for their continued sup- store merchandise to local tastes and being implemented, should move each port. Most importantly, we would also to test distribution of new product business forward on a growth path. like to thank all employees of NACCO categories such as textiles and gourmet In 2013, overall consolidated and its subsidiary companies for their foods. In addition, the company is income from continuing operations continued hard work and commitment pursuing strategies to enhance its is expected to increase moderately to achieving the successes and meeting e-commerce and mobile technology compared with 2012, primarily because the challenges of 2012. We continue to capabilities to ensure it is meeting Kitchen Collection is expected to have great confidence in the manage- the needs of its consumers regardless improve to modest net income in 2013. ment teams leading each of our sub- The housewares market is expected to sidiaries and the parent company. Our of whether shopping occurs in the company’s stores or on its websites. Through the execution of its ini- tiatives, the Kitchen Collection® stores are expected to achieve higher margins in 2013, but are still not expected to achieve the long-term operating margin target of 5 percent in the immediate future. Le Gourmet Chef® stores are not expected to achieve target margins unless sales volumes per store increase and until additional underperforming stores are closed. Conclusion and NACCO Outlook. The most significant event in NACCO’s 100th year was the spin- off of Hyster-Yale Materials Handling. The new NACCO Industries that remains has substantial opportunities for growth and profitability as it moves on to its second 100 years. NACCO is confident that each subsidiary has the right initiatives in place both to grow and to achieve its long-term financial objectives. Growth opportunities are particularly significant at the NACoal remain challenging for both HBB and Kitchen Collection, but the Company is hopeful consumer confidence and financial position will improve and that customer visits, number of trans- actions and sales per transaction will consequently improve at mass-market retailers and outlet malls. Comparable results are expected at HBB as higher expenses associated with implementing its strategic initiatives are expected to offset the gross margin effect of antici- pated top-line growth. Finally, while an expected increase in tons delivered and lower operating expenses in 2013 are expected to lead to improved operating results at NACoal, the absence of gains from asset sales in 2012 is expected to result in slightly decreased net income in 2013 than in 2012. NACCO expects an overall increase in cash flow before financing activities in 2013 compared with 2012. O and HBB businesses, although both will We would like to welcome James be prudent in their implementation. Ratner and David Williams, both of Kitchen Collection is concentrating on whom joined our Board after the spin- ways it can improve by thoughtfully off of the materials handling business. identifying what is and what is not We are privileged to have them on working at each format and making our Board. 23 many experienced and highly motivated professionals worked successfully to transform NACCO through the spin-off of Hyster-Yale, secure two new mining projects for North American Coal, over- come challenges in the Housewares market and deliver the Company’s solid financial results in 2012. We are confident they can successfully implement their respective strategic initiatives to propel the Company into our next 100 years. 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 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 Supplemental Data Reconciliation of 2011 Consolidated Income from continuing operations “As reported” to Adjusted Income from continuing operations: 2011 Income from continuing operations, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impact of Applica settlement, after taxes of $21.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impact of Applica litigation costs, after taxes of $1.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 Adjusted Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ (In millions, except per share data) 2011 Diluted earnings per share 79.5 (39.0) 1.8 42.3 $ $ 9.46 (4.64) 0.21 5.03 Adjusted Income from continuing operations is a measure of income that differs from Income from continuing operations measured in accordance with U.S. GAAP. The Company has reported adjusted income from continuing operations and earnings per diluted share for the year ended December 31, 2011 excluding the net effect of the Applica settlement and related litigation costs. Management believes a discussion excluding the settlement and litigation costs is more reflective of NACCO’s underlying business operations and enables investors to better understand the results of operations of the Company. Calculation of Return on Capital Employed: 2012 2012 Average Equity (12/31/2011 and each of 2012’s quarter ends) . . . . . . . . . . . . . . . . . . . . 2012 Average Debt (12/31/2011 and at each of 2012’s quarter ends) . . . . . . . . . . . . . . . . . . . 2012 Average Cash (12/31/2011 and at each of 2012’s quarter ends) . . . . . . . . . . . . . . . . . . . Total 2012 average capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 Net income (loss), as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plus: 2012 Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Income taxes on 2012 interest expense at 38%*. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on capital employed = actual net income (loss) before interest expense, net, after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on capital employed percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of Return on Capital Employed: 2011 2011 Average Equity (12/31/2010 and each of 2011’s quarter ends) . . . . . . . . . . . . . . . . . . . . 2011 Average Debt (12/31/2010 and at each of 2011’s quarter ends) . . . . . . . . . . . . . . . . . . . 2011 Average Cash (12/31/2010 and at each of 2011’s quarter ends) . . . . . . . . . . . . . . . . . . . Total 2011 average capital employed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plus: 2011 Interest expense, as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Income taxes on 2011 interest expense at 38%**. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on capital employed = actual net income before interest expense, after tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on capital employed percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (In millions, except percentage data) NACoal HBB Kitchen Collection $ $ $ $ $ $ $ $ 96.4 109.0 (5.7) 199.7 32.8 2.7 (1.0) 34.5 17.3% NACoal 133.8 51.9 (2.7) 183.0 29.4 2.7 (1.0) 31.1 17.0% $ $ $ $ $ $ $ $ 36.0 45.5 (3.7) 77.8 21.2 2.7 (1.0) 22.9 29.4% HBB 22.3 90.6 (34.8) 78.1 18.4 5.2 (2.0) 21.6 27.7% $ $ $ $ $ $ $ $ 42.9 7.9 (5.3) 45.5 (3.1) 0.5 (0.2) (2.8) (6.1%) Kitchen Collection 43.2 7.6 (5.1) 45.7 1.1 0.5 (0.2) 1.4 3.1% Return on capital employed is provided solely as a supplemental disclosure with respect to income generation because management believes it provides useful information with respect to earnings in a form that is comparable to the Company’s cost of capital employed, which includes both equity and debt securities, net of cash. Return on equity is defined as net income divided by average equity. * Tax rate of 38% represents the Company’s target marginal tax rate compared with 2012’s effective income tax rate of 27.2%. ** Tax rate of 38% represents the Company’s target marginal tax rate compared with 2011’s effective income tax rate of 29.2%. 24 Officers and Directors Officers of Subsidiaries Officers of The North American Coal Corporation Alfred M. Rankin, Jr. Chairman Robert L. Benson President and Chief Executive Officer J.C. Butler, Jr. Senior Vice President-Project Development and Administration Michael J. Gregory Vice President-International Operations and Special Projects Miles B. Haberer Associate General Counsel and Assistant Secretary Thomas A. Koza Vice President, Senior Counsel and Assistant Secretary John D. Neumann Vice President, General Counsel and Secretary Harry B. Tipton III Vice President-Engineering, and Louisiana and Mississippi Operations K. Donald Grischow Treasurer John R. Pokorny Controller Officers of Hamilton Beach Brands, Inc. Alfred M. Rankin, Jr. Chairman Gregory H. Trepp President and Chief Executive Officer Gregory E. Salyers Senior Vice President, Global Operations R. Scott Tidey Senior Vice President, North America Sales and Marketing Keith B. Burns Vice President, Engineering and Information Technology Kathleen L. Diller Vice President, General Counsel and Secretary James H. Taylor Vice President and Chief Financial Officer Richard E. Moss Senior Director, Finance & Treasurer Officers of The Kitchen Collection, LLC Alfred M. Rankin, Jr. Chairman Gregory H. Trepp Chief Executive Officer Richard R. Chene, Jr. President Randy L. Sklenar Vice President-Field Operations and Human Resources Karen E. Cavender Controller L.J. Kennedy Secretary and Treasurer Officers and Directors of NACCO Industries, Inc. Officers: Alfred M. Rankin, Jr. Chairman, President and Chief Executive Officer J.C. Butler, Jr. Senior Vice President – Finance, Treasurer and Chief Administrative Officer Mark E. Barrus Vice President and Controller John D. Neumann Vice President, General Counsel and Secretary Robert L. Benson President and Chief Executive Officer – The North American Coal Corporation Gregory H. Trepp President and Chief Executive Officer – Hamilton Beach Brands, Inc. Directors: John P. Jumper Chief Executive Officer, SAIC Retired Chief of Staff, United States Air Force 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. James A. Ratner Executive Vice President of Forest City Enterprises, Inc. and Chairman and Chief Executive Officer of Forest City Commercial Group Britton T. Taplin Self employed (personal investments) David F. Taplin Self employed (tree farming) John F. Turben Founding Partner, Kirtland Capital Partners David B. H. Williams Partner, Williams, Bax & Saltzman, P.C. Corporate Information Annual Meeting The Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 7, 2013, at 9:00 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 free of charge through NACCO Industries’ website (www.nacco.com) or by request to: Investor Relations NACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220 Cleveland, Ohio 44124 (440) 229-5130 Stock Transfer Agent and Registrar Computershare 250 Royall Street Canton, Massachusetts 02021 (800) 622-6757 Legal Counsel McDermott Will & Emery LLP 227 West Monroe Street Chicago, Illinois 60606 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 220 Cleveland, Ohio 44124 (440) 229-5130 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 for NACCO’s subsidiaries are as follows: Hamilton Beach Brands–U.S.: www.hamiltonbeach.com www.proctorsilex.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 Annual Report on Form 10-K is printed using post-consumer waste recycled paper and vegetable-based inks. By using this environmental paper, NACCO Industries, Inc. saved the following resources: 29 trees pre- served for the future 83 lbs. water- borne waste not created 12,260 gal. wastewater flow saved 1,356 lbs. solid waste not generated 2,671 lbs. net greenhouse gases prevented 20,442,500 BTUs 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 Council. Front cover: Top: Mine workers at North American Coal’s Powhatan Mine (circa 1940). Middle: Heritage Hamilton Beach® products, clockwise from the top: Hamilton Beach® Drink mixer (circa 1910), Hamilton Beach® Standmixer Juice Extractor (circa 1930), Hamilton Beach® Standmixer (circa 1950), Hamilton Beach® Hand Mixer (circa 1950), Hamilton Beach® Iron (circa 1950), Hamilton Beach® Toaster (circa 1940) Bottom: An early model Hyster® lift truck (circa 1940) loads lumber onto a pallet. 5875 Landerbrook Drive, Suite 220 • Cleveland, Ohio 44124 An Equal Opportunity Employer 

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