NACCO Industries, Inc. Annual Report 2012

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FY2012 Annual Report · NACCO Industries, Inc.

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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.

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.

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.

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.

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

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.

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

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

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.

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.

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,

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

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.

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.

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.

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.

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

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.

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.

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.

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.

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%.

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