1
Exhibit 13
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
NACCO INDUSTRIES, INC.
MAYFIELD HEIGHTS, OHIO
F-1
2
FORM 10-K
ITEM 14(a)(1) AND (2)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries,
Inc. and Subsidiaries are included in Item 8:
Report of Independent Public Accountants--Year ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Income--Year ended December 31, 1997, 1996
and 1995.
Consolidated Balance Sheets--December 31, 1997 and December 31, 1996.
Consolidated Statements of Cash Flows--Year ended December 31, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Equity--Year ended December
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
NACCO Industries, Inc. Report of Management
The following consolidated financial statement schedules of NACCO
Industries, Inc. and Subsidiaries are included in Item 14(d):
Schedule I Condensed Financial Information of the Parent
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of NACCO Industries, Inc.:
We have audited the accompanying consolidated balance sheets of NACCO
Industries, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NACCO Industries,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item 14(a)(1) and
(2) and Item 14(d) of Form 10-K are the responsibility of the Company's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
These schedules have been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Cleveland, Ohio
February 10, 1998
F-3
4
CONSOLIDATED STATEMENTS OF INCOME
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
--------------------------------------------------
1997 1996 1995
---------------- --------------- ---------------
(In millions, except per share data)
Revenues $ 2,246.9 $ 2,273.2 $ 2,204.5
Cost of sales 1,825.9 1,874.1 1,809.4
--------------- --------------- ---------------
GROSS PROFIT 421.0 399.1 395.1
Selling, general and administrative expenses 265.2 252.5 232.7
Amortization of goodwill 15.8 15.4 13.7
Restructuring charge 8.0 --- ---
--------------- --------------- ---------------
OPERATING PROFIT 132.0 131.2 148.7
Other income (expense)
Interest expense (36.6) (45.9) (47.2)
Other - net (6.3) 1.0 2.0
--------------- --------------- ---------------
(42.9) (44.9) (45.2)
--------------- --------------- ---------------
INCOME BEFORE INCOME TAXES, MINORITY INTEREST AND
EXTRAORDINARY ITEMS 89.1 86.3 103.5
Provision for income taxes 26.4 34.3 34.7
--------------- --------------- ---------------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEMS 62.7 52.0 68.8
Minority interest (.9) (1.4) (3.3)
--------------- --------------- ---------------
INCOME BEFORE EXTRAORDINARY ITEMS 61.8 50.6 65.5
Extraordinary gain, net-of-tax --- --- 32.3
Extraordinary charges, net-of-tax --- --- (3.4)
--------------- --------------- ---------------
NET INCOME $ 61.8 $ 50.6 $ 94.4
=============== =============== ===============
BASIC EARNINGS PER SHARE:
Income Before Extraordinary Items $ 7.56 $ 5.67 $ 7.31
Extraordinary gain, net-of-tax --- --- 3.61
Extraordinary charges, net-of-tax --- --- (.38)
--------------- --------------- ---------------
Net income $ 7.56 $ 5.67 $ 10.54
=============== =============== ===============
DILUTED EARNINGS PER SHARE:
Income Before Extraordinary Items $ 7.55 $ 5.67 $ 7.30
Extraordinary gain, net-of-tax --- --- 3.60
Extraordinary charges, net-of-tax --- --- (.38)
--------------- --------------- ---------------
Net income $ 7.55 $ 5.67 $ 10.52
=============== =============== ===============
See Notes to Consolidated Financial Statements.
F-4
5
CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
December 31
----------------------------------
1997 1996
---------------- ----------------
(In millions)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24.1 $ 47.8
Accounts receivable, net of allowance of $14.1 and $12.5 240.8 212.2
Inventories 302.9 309.6
Prepaid expenses and other 31.8 22.2
---------------- ----------------
599.6 591.8
PROPERTY, PLANT AND EQUIPMENT, NET 541.7 550.3
DEFERRED CHARGES
Goodwill, net 449.3 461.0
Deferred costs and other 63.5 59.6
Deferred income taxes 24.1 7.9
---------------- ----------------
536.9 528.5
OTHER ASSETS 50.9 37.5
---------------- ----------------
TOTAL ASSETS $ 1,729.1 $ 1,708.1
================ ================
F-5
6
CONSOLIDATED BALANCE SHEETS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
December 31
----------------------------------
1997 1996
---------------- ----------------
(In millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 244.7 $ 186.3
Revolving credit agreements 23.5 45.8
Current maturities of long-term debt 18.9 21.4
Income taxes 12.8 5.9
Accrued payroll 36.4 30.8
Accrued warranty obligations 27.9 21.5
Other current liabilities 142.3 104.3
---------------- ----------------
506.5 416.0
LONG-TERM DEBT - not guaranteed by
the parent company 230.2 333.3
OBLIGATIONS OF PROJECT MINING SUBSIDIARIES -
not guaranteed by the parent company or
its NACoal subsidiary 328.0 341.5
SELF-INSURANCE RESERVES AND OTHER 222.7 223.9
MINORITY INTEREST 16.6 14.1
STOCKHOLDERS' EQUITY
Common stock:
Class A, par value $1 per share, 6,477,414
shares outstanding (1996 - 6,492,059 shares outstanding) 6.5 6.5
Class B, par value $1 per share, convertible
into Class A on a one-for-one basis,
1,676,146 shares outstanding
(1996 - 1,694,336 shares outstanding) 1.7 1.7
Capital in excess of par value .1 .1
Retained earnings 412.9 359.2
Foreign currency translation adjustment and other 3.9 11.8
---------------- ----------------
425.1 379.3
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,729.1 $ 1,708.1
================ ================
See Notes to Consolidated Financial Statements.
F-6
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
---------------------------------------------------
1997 1996 1995
---------------- ---------------- ---------------
(In millions)
OPERATING ACTIVITIES
Net income $ 61.8 $ 50.6 $ 94.4
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary gain, net-of-tax --- --- (32.3)
Extraordinary charges, net-of-tax --- --- 2.2
Depreciation, depletion and amortization 88.6 85.3 79.3
Deferred income taxes (24.3) (3.2) 1.4
Other non-cash items (.1) (3.7) 2.1
Working capital changes:
Accounts receivable (35.1) 90.0 (38.6)
Inventories (1.3) 87.3 (85.6)
Other current assets (3.1) (.6) 2.4
Accounts payable and other liabilities 122.6 (64.3) 6.8
---------------- ---------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 209.1 241.4 32.1
---------------- ---------------- ---------------
INVESTING ACTIVITIES
Expenditures for property, plant and equipment (68.4) (79.4) (73.1)
Proceeds from the sale of other assets 3.4 1.1 1.3
Acquisitions of businesses (14.0) (45.1) (7.3)
Other-net 1.0 .6 .7
---------------- ---------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (78.0) (122.8) (78.4)
---------------- ---------------- ---------------
FINANCING ACTIVITIES
Additions to long-term debt
and revolving credit agreements 45.2 115.9 328.2
Reductions of long-term debt
and revolving credit agreements (169.1) (157.4) (276.5)
Additions to obligations of Project Mining
Subsidiaries 58.1 68.8 93.0
Reductions of obligations of Project Mining
Subsidiaries (79.1) (74.5) (102.1)
Financing of other short-term obligations (.5) (10.6) 10.8
Stock repurchases (2.8) (40.4) ---
Cash dividends paid (6.3) (6.7) (6.4)
Capital grants .7 4.2 4.0
Other-net .9 (2.8) 5.6
---------------- ---------------- ---------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (152.9) (103.5) 56.6
---------------- ---------------- ---------------
Effect of exchange rate changes on cash (1.9) 1.8 1.1
---------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year (23.7) 16.9 11.4
Balance at the beginning of the year 47.8 30.9 19.5
---------------- ---------------- ---------------
BALANCE AT THE END OF THE YEAR $ 24.1 $ 47.8 $ 30.9
================ ================ ===============
See Notes to Consolidated Financial Statements.
F-7
8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(In millions)
CLASS A COMMON STOCK
Beginning balance $ 6.5 $ 7.3 $ 7.2
Purchase of treasury shares (.1) (.8) ---
Other .1 --- .1
---------------- ---------------- ----------------
6.5 6.5 7.3
---------------- ---------------- ----------------
CLASS B COMMON STOCK 1.7 1.7 1.7
---------------- ---------------- ----------------
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance .1 3.6 2.8
Shares issued under stock
option and compensation plans 1.0 1.1 .8
Purchase of treasury shares (1.0) (4.6) ---
---------------- ---------------- ----------------
.1 .1 3.6
---------------- ---------------- ----------------
RETAINED EARNINGS
Beginning balance 359.2 350.3 262.3
Net income 61.8 50.6 94.4
Purchase of treasury shares (1.8) (35.0) ---
Cash dividends on Class A and Class B common stock:
1997 $.773 per share (6.3)
1996 $.743 per share (6.7)
1995 $.710 per share (6.4)
---------------- ---------------- ----------------
412.9 359.2 350.3
---------------- ---------------- ----------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT AND OTHER
Beginning balance 11.8 7.2 5.4
Foreign currency translation adjustment and other (7.9) 4.6 1.8
---------------- ---------------- ----------------
3.9 11.8 7.2
---------------- ---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $ 425.1 $ 379.3 $ 370.1
================ ================ ================
See Notes to Consolidated Financial Statements.
F-8
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE AND PERCENTAGE DATA)
NOTE 1--PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
The Consolidated Financial Statements include the accounts of NACCO Industries,
Inc. ("NACCO," the parent company) and its majority owned subsidiaries (NACCO
Industries, Inc. and Subsidiaries - the "Company"). Intercompany accounts and
transactions are eliminated. The Company has four operating subsidiaries which
function in distinct business environments; forklift truck manufacturing and
service parts distribution, small electric appliance manufacturing, mining and
retail.
NACCO Materials Handling Group, Inc. ("NMHG"), 98 percent-owned by NACCO,
designs, manufactures and markets forklift trucks and related service parts
under the Hyster(R) and Yale(R) brand names. NMHG's manufacturing plants are
located primarily in the United States and Europe. In addition, NMHG has
manufacturing facilities in Japan through its 50 percent-owned Japanese joint
venture, Sumitomo-NACCO Materials Handling Group ("S-N"). While NMHG's market
position is strongest in North America, it also has a significant presence in
Europe and a growing position in Asia-Pacific.
Hamilton Beach*Proctor-Silex, Inc. ("HB*PS") designs, manufactures and markets
small electric appliances covering approximately 80 percent of the small kitchen
electric appliance market. Effective October 18, 1996, HB*PS became a wholly
owned subsidiary when NACCO purchased the remaining 20 percent minority interest
from the previous minority shareholder. The effect of this transaction was not
material to NACCO's financial position or results of operations. HB*PS
manufactures the majority of its products at its plants located in North America
and also sources some of its products from the Far East. HB*PS primarily sells
its products to retailers and distributors in North America.
The North American Coal Corporation ("NACoal"), wholly owned by NACCO, mines and
markets lignite for use primarily as fuel for power generation by electric
utilities. NACoal operates five surface lignite mines, two in North Dakota, two
in Texas and one in Louisiana. Three of NACoal's subsidiaries (the "Project
Mining Subsidiaries") operate lignite mines under long-term contracts to sell
lignite at a price based on actual costs plus an agreed pretax profit per ton,
while two other NACoal subsidiaries operate lignite mines under long-term
contracts to sell lignite at a fixed price per ton. In addition, NACoal provides
dragline mining services at a limerock quarry in Florida.
The Kitchen Collection, Inc. ("KCI"), wholly owned by NACCO, is a national
specialty retailer of kitchenware, tableware, small electric appliances and
related accessories with stores located primarily in factory outlet malls.
NOTE 2--ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities (if
any) at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash in banks and
highly liquid investments with original maturities of three months or less.
F-9
10
NOTE 2-- ACCOUNTING POLICIES - Continued
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined under the last-in, first-out (LIFO) method for manufacturing
inventories in the United States and under the first-in, first-out (FIFO) method
with respect to all other inventories.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are recorded at
cost. Depreciation, depletion and amortization are provided in amounts
sufficient to amortize the cost of the assets, including assets recorded under
capital leases, over their estimated useful lives using the straight-line
method. The units-of-production method is used to amortize certain coal-related
assets based on estimated recoverable tonnages.
GOODWILL: Goodwill represents the excess purchase price paid over the fair value
of the net assets acquired. The amortization of goodwill is provided on a
straight-line basis over a 40-year period. Accumulated amortization of goodwill
was $122.0 million and $106.2 million at December 31, 1997 and 1996,
respectively. Management regularly evaluates its accounting for goodwill
considering such factors as historical and future profitability and believes
that the asset is realizable and the amortization period remains appropriate.
REVENUE RECOGNITION: Revenues are recognized when customer orders are completed
and shipped. Accruals for the cost of product warranties are maintained for
anticipated future claims.
ADVERTISING COSTS: Advertising costs are expensed as incurred and amounted to
$36.8 million, $33.6 million and $32.6 million in 1997, 1996 and 1995,
respectively.
PRODUCT DEVELOPMENT COSTS: Expenses associated with the development of new
products and changes to existing products are charged to expense as incurred.
These costs amounted to $27.9 million, $27.0 million and $27.5 million in 1997,
1996 and 1995, respectively.
FOREIGN CURRENCY: Assets and liabilities of foreign operations are translated
into U.S. dollars at the fiscal year-end exchange rate. The related translation
adjustments are recorded as a separate component of Stockholders' Equity.
Revenues and expenses are translated using the monthly average exchange rates
prevailing during the year.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS: Financial
instruments held by the Company include cash and cash equivalents, accounts
receivable, accounts payable, revolving credit agreements, long-term debt,
interest rate swap agreements and forward foreign currency exchange contracts.
The Company does not hold or issue financial instruments or derivative financial
instruments for trading purposes.
NMHG and HB*PS operate internationally and enter into transactions denominated
in foreign currencies. As a result, the Company is subject to the transaction
exposures that arise from exchange rate movements between the dates foreign
currency transactions are recorded and the dates they are consummated. NMHG and
HB*PS use forward foreign currency exchange contracts to partially reduce risks
related to transactions denominated in foreign currencies. These contracts
usually have maturities of one to twelve months and generally require the
companies to buy or sell Japanese yen, Australian dollars, Canadian dollars or
various European currencies for the U.S. dollar at rates agreed to at the
inception of the contracts.
Generally, gains and losses from changes in the market value of these contracts
are recognized in Cost of sales and offset the foreign exchange gains and losses
on the underlying transactions. Gains and losses on contracts designated as
hedges of firm commitments denominated in foreign currencies are deferred and
included in the measurement of the related transaction.
F-10
11
NOTE 2--ACCOUNTING POLICIES - Continued
NMHG and HB*PS have entered into interest rate swap agreements for portions of
their floating rate revolving credit facilities. NACoal (on behalf of its
Project Mining Subsidiaries) and KCI have entered into interest rate swap
agreements for portions of their long-term debt. These interest rate swap
agreements allow the subsidiaries to enter into long-term financing arrangements
that have performance-based, floating rates of interest, and then exchange them
for fixed rates of interest, as opposed to entering into higher-cost fixed-rate
credit arrangements. Terms of the interest rate swap agreements generally
require the subsidiaries to receive a variable interest rate and pay a fixed
interest rate. Variable rates for both the floating rate financing and the
interest rate swap agreements are predominately linked to three-month LIBOR
(London Interbank Offered Rate). The common link promotes the effectiveness of
interest rate swaps as hedging instruments.
Amounts to be paid or received under the interest rate swap agreements are
accrued as interest rates change and are recognized over the life of the swap
agreement as an adjustment to Interest expense. The related amounts payable to,
or receivable from, the counterparties are included in Other current
liabilities. Changes in the market value of the interest rate swap agreements
are not recognized in Net Income. However, in the event of extinguishment of the
underlying debt, changes in the market value of interest rate swap agreements
that could not be designated as hedges of other assets, liabilities or
anticipated transactions would be recognized in Net Income over the remaining
life of the contract or upon termination of the contract.
RECLASSIFICATIONS: Certain amounts in the prior periods' Consolidated Financial
Statements have been reclassified to conform to the current period's
presentation.
NOTE 3--EXTRAORDINARY ITEMS
EXTRAORDINARY GAIN - UMWA OBLIGATION: The extraordinary gain of $32.3 million
recognized in 1995, net of $19.8 million in taxes, relates to a downward
revision in the obligation to the United Mine Workers of America Combined
Benefit Fund ("UMWA"). This obligation was recognized by The Bellaire
Corporation ("Bellaire," a wholly owned non-operating subsidiary of NACCO) as an
extraordinary charge in 1992 to accrue for the estimated costs associated with
the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"), which is
discussed in more detail in Note 12. It is the Company's policy to periodically
review the estimates and assumptions upon which various reserves are based. As a
result of this review, the Company reduced the reserve for the UMWA obligation
in 1995. Management believes that the estimated future cost of this obligation
has been adequately accrued.
EXTRAORDINARY CHARGES - EARLY EXTINGUISHMENT OF DEBT: The extraordinary charge
recognized in 1995 related to the write-off of premiums and unamortized
financing fees. This extraordinary charge included a $1.3 million charge, net of
taxes, for unamortized financing fees on NMHG's former revolving credit facility
and senior term loan which were replaced by a long-term revolving credit
facility. In addition, the retirement of $78.5 million face-value Hyster-Yale 12
3/8% debentures in 1995 resulted in a charge of $2.1 million, net of taxes, due
to the write-off of premiums and unamortized financing fees.
F-11
12
NOTE 4--SPECIAL CHARGES
RESTRUCTURING CHARGE: During the fourth quarter of 1997, the board of directors
approved a plan to restructure certain activities at NMHG and, accordingly, the
Company recognized a charge of $8.0 million ($4.8 million after effective tax
provision). In order to improve customer service, increase productivity and
thereby reduce costs, the Company decided to consolidate certain functions
within the NMHG organization. The restructuring plan involves combining certain
engineering, marketing and administrative functions, which will result in the
construction of two new engineering and marketing facilities on Company-owned
property, the addition of one new leased administrative building and the closing
of one owned and four leased facilities. In addition, the plan includes the
termination of approximately 309 engineering, marketing and administrative
employees which will result in a net reduction of approximately 130 employee
positions after considering staffing requirements at remaining facilities. The
fourth quarter 1997 charge to earnings of $8.0 million represents severance
payments of $1.1 million to approximately 52 employees and a $6.9 million
accrual consisting of $5.9 million for severance and other employee benefits and
$1.0 million for lease termination costs. The Company anticipates completion of
the restructuring plan by the end of 1998 and no material incremental costs are
expected to be recognized in future periods.
SPECIAL CHARGE: In addition to the restructuring charge and in connection with
the restructuring plan, the Company recognized a charge to earnings of $8.3
million ($5.0 after effective tax provision) classified as Selling, general and
administrative expenses relating to commitments to provide relocation benefits
to certain employees. Of this amount, $0.1 million was paid to employees in the
fourth quarter of 1997 and the remaining $8.2 million has been accrued. The
Company anticipates that employee relocations will be completed by the end of
1998 and no material incremental costs are expected to be recognized in future
periods.
NOTE 5--ACCOUNTS RECEIVABLE SECURITIZATION
In 1997, NMHG entered into a one-year agreement to sell all of its domestic
accounts receivable, on a revolving basis, to Lift Truck Funding Company, LLC
("LTF"), a wholly owned subsidiary of NMHG. LTF was formed prior to the
execution of this agreement for the purpose of buying and selling accounts
receivable and is designed to be bankruptcy remote.
Also in 1997, NMHG and LTF entered into a one year agreement with a financial
institution whereby LTF can sell, on a revolving basis, an undivided percentage
ownership interest in certain eligible accounts receivable, as defined, up to a
maximum of $60.0 million. This two-step transaction is accounted for as a sale
of receivables. Accordingly, the Company's Consolidated Balance Sheets reflect
the portion of receivables transferred to the financial institution as a
reduction of Accounts receivable, net. The discount and any other transaction
gains and losses are included in Other - net in the Consolidated Statements of
Income. NMHG continues to service the receivables and maintains an allowance for
doubtful accounts based upon the expected collectibility of all NMHG accounts
receivable, including the portion of receivables sold by LTF.
In accordance with this agreement, gross proceeds of $264.0 million were
received during 1997 and the balance of accounts receivable sold at December 31,
1997 was $18.6 million, net of a discount. The proceeds from the initial sale of
receivables of $33.0 million were used to retire debt outstanding under NMHG's
revolving credit agreement. The net effect of the sale of receivables during
1997 was not material to the operating results of NACCO.
F-12
13
NOTE 6--INVENTORIES
Inventories are summarized as follows:
December 31
----------------------------------
1997 1996
---------------- ----------------
Manufacturing inventories:
Finished goods and service parts -
NMHG $ 86.9 $ 113.6
HB*PS 31.8 34.1
---------------- ----------------
118.7 147.7
---------------- ----------------
Raw materials and work in process -
NMHG 135.6 120.6
HB*PS 15.1 14.0
---------------- ----------------
150.7 134.6
---------------- ----------------
LIFO reserve -
NMHG (13.4) (15.6)
HB*PS 1.1 .3
---------------- ----------------
(12.3) (15.3)
---------------- ----------------
Total manufacturing inventories 257.1 267.0
Coal - NACoal 10.7 8.3
Mining supplies - NACoal 19.2 18.9
Retail inventories - KCI 15.9 15.4
---------------- ----------------
$ 302.9 $ 309.6
================ ================
The cost of manufacturing inventories has been determined by the LIFO method for
70 percent and 62 percent of such inventories at December 31, 1997 and 1996,
respectively.
NOTE 7--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes the following:
December 31
----------------------------------
1997 1996
---------------- ----------------
Coal lands and real estate:
NMHG $ 9.7 $ 6.6
HB*PS 2.4 1.6
NACoal 15.5 16.1
Project Mining Subsidiaries (Note 10) 80.2 77.9
KCI --- ---
NACCO and Other .2 .2
---------------- ----------------
108.0 102.4
---------------- ----------------
Plant and equipment:
NMHG 298.6 289.3
HB*PS 137.9 123.7
NACoal 27.8 20.7
Project Mining Subsidiaries (Note 10) 448.0 438.4
KCI 7.8 7.4
NACCO and Other 4.8 4.8
---------------- ----------------
924.9 884.3
---------------- ----------------
Property, plant and equipment at cost 1,032.9 986.7
Less allowances for depreciation,
depletion and amortization 491.2 436.4
---------------- ----------------
$ 541.7 $ 550.3
================ ================
F-13
14
NOTE 7--PROPERTY, PLANT AND EQUIPMENT - Continued
Total depreciation, depletion and amortization expense on property, plant and
equipment was $70.9 million, $67.7 million and $63.9 million during 1997, 1996
and 1995, respectively.
Proven and probable coal reserves approximated 2.0 billion and 2.1 billion tons
at December 31, 1997 and 1996, respectively.
NOTE 8--REVOLVING CREDIT AGREEMENTS
Financing arrangements are obtained and maintained at the subsidiary level.
NACCO has not guaranteed the long-term debt or any borrowings of its
subsidiaries.
The following table summarizes the Company's available and outstanding
borrowings. A summary of the agreements at each subsidiary follows this table.
December 31
----------------------------------
1997 1996
---------------- ----------------
Available borrowings:
NMHG $ 361.2 $ 385.7
HB*PS 187.9 185.0
NACoal 50.0 50.0
KCI 4.9 5.0
---------------- ----------------
$ 604.0 $ 625.7
================ ================
Current portion of borrowings outstanding:
NMHG $ 2.2 $ 7.8
HB*PS 7.3 9.0
NACoal 14.0 29.0
KCI --- ---
---------------- ----------------
$ 23.5 $ 45.8
================ ================
Unused availability:
NMHG $ 209.0 $ 133.9
HB*PS 107.6 96.0
NACoal 36.0 21.0
KCI 4.9 5.0
---------------- ----------------
$ 357.5 $ 255.9
================ ================
Weighted average stated interest rate:
NMHG 6.2% 6.0%
HB*PS 6.4% 5.8%
NACoal 6.4% 6.1%
KCI 6.2% 6.0%
Weighted average effective interest rate (including interest swap
agreements):
NMHG 7.1% 6.5%
HB*PS 6.3% 6.1%
NACoal N/A N/A
KCI N/A N/A
F-14
15
NOTE 8--REVOLVING CREDIT AGREEMENTS - Continued
NMHG: NMHG's credit agreement provides for an unsecured revolving credit
facility ("NMHG Facility") that permits advances up to $350.0 million. However,
this availability is reduced by the portion of domestic receivables sold. (See
Note 5 for a discussion of the sale of domestic accounts receivable.) The
expiration date of the NMHG Facility (which was extended to June 2002 during
1997) may be extended, on an annual basis, for one additional year upon the
mutual consent of NMHG and the bank group. NMHG does not anticipate repayment of
the outstanding balance in the subsequent fiscal year. As such, the outstanding
balance of this credit facility has been classified as long-term.
In addition, the NMHG Facility has performance-based pricing which sets interest
rates based upon achievement of certain financial performance targets. The NMHG
Facility currently provides for, at NMHG's option, Euro-Dollar Loans which bear
interest at LIBOR plus 0.2 percent and Money Market Loans which bear interest at
Auction Rates (as defined in the agreement) and requires a 0.1 percent fee on
the available borrowings. NMHG also has separate facilities totaling $38.5
million and $35.7 million at December 31, 1997 and 1996, respectively, of which
$27.6 million and $27.9 million was available at December 31, 1997 and 1996,
respectively. Amounts available under these facilities are reduced by
outstanding letters of credit.
HB*PS: HB*PS's credit agreement provides for a revolving credit facility ("HB*PS
Facility") that permits advances up to $160.0 million and is secured by
substantially all assets of HB*PS. A portion of the outstanding balance is
classified as long-term because it is not expected to be repaid during the
subsequent fiscal year. The HB*PS Facility, which expires in May 2002, provides
reduced interest rates if HB*PS achieves a certain interest coverage ratio and
allows interest rates quoted under a competitive bid option. The HB*PS Facility
currently provides for interest at LIBOR plus 0.3 percent and requires a 0.2
percent facility fee on the available borrowings. HB*PS also has separate
facilities totaling $30.0 million and $25.0 million at December 31, 1997 and
1996, respectively, of which $24.7 million and $23.9 million was available at
December 31, 1997 and 1996, respectively. Amounts available under these
facilities are reduced by outstanding letters of credit.
NACOAL: NACoal has in place a revolving credit facility ("NACoal Facility") that
permits advances up to $50.0 million and requires a 0.2 percent commitment and
facility fee. The expiration date of the NACoal Facility (which was extended to
September 2002 during 1997) may be extended, on an annual basis, for one
additional year upon the mutual consent of NACoal and the bank group. Borrowings
bear interest at LIBOR plus 0.4 percent.
KCI: KCI has in place a revolving credit facility ("KCI Facility") that permits
advances up to $5.0 million and requires a 0.2 percent facility fee. The
expiration date of the KCI Facility (which was extended to May 2000 during 1997)
may be extended, on an annual basis, for one additional year upon the mutual
consent of KCI and the bank. Borrowings bear interest at the bank's prime rate,
money market rate or LIBOR rate plus a base rate margin of 0.4 to 1.3 percent,
as determined by certain performance measures. Outstanding letters of credit
reduce the amount available under this facility.
F-15
16
NOTE 9--LONG-TERM DEBT
Subsidiary long-term debt, less current maturities, is as follows:
December 31
----------------------------------
1997 1996
---------------- ----------------
NMHG - Long-term portion of revolving credit agreement $ 150.0 $ 244.0
NMHG - Other 1.8 3.7
---------------- ----------------
151.8 247.7
HB*PS - Long-term portion of revolving credit agreement 73.0 80.0
HB*PS - Other .4 .5
---------------- ----------------
73.4 80.5
NACOAL - Other --- .1
KCI - Term note with a stated interest rate of 6.8% and an effective
interest rate of 7.8% and 8.1% at December 31, 1997 and 1996,
respectively, payable 1999 to 2000 5.0 5.0
---------------- ----------------
$ 230.2 $ 333.3
================ ================
The maturities of the subsidiary long-term debt for the next five years,
including current maturities, are as follows: $3.3 million in 1998, $4.0 million
in 1999 and $3.0 million in 2000, $0.1 million in 2001 and $73.1 million in
2002. Interest paid on revolving credit agreements and long-term debt was $24.9
million, $32.1 million and $38.4 million during 1997, 1996 and 1995,
respectively.
The credit agreements for NMHG, HB*PS, NACoal and KCI contain certain covenants
and restrictions. These covenants require, among other things, some or all of
the following: maintenance of certain minimum amounts of net worth and certain
specified ratios of working capital, debt to capitalization, interest coverage
and fixed charge coverage. These ratios are calculated at the subsidiary level.
Restrictions may also include limits on capital expenditures and dividends. At
December 31, 1997, the subsidiaries were in compliance with the covenants in
their credit agreements.
NOTE 10--OBLIGATIONS OF PROJECT MINING SUBSIDIARIES
NACoal's Project Mining Subsidiaries have entered into long-term contracts with
various utility customers to provide lignite at a sales price based on cost plus
a profit per ton. The utility customers have arranged and guaranteed the
financing for the development and operation of these subsidiary mines. The
obligations of these Project Mining Subsidiaries included in the Company's
Consolidated Balance Sheets do not affect the short- or long-term liquidity of
the Company and are without recourse to NACCO or its NACoal subsidiary.
Obligations of Project Mining Subsidiaries, less current maturities, consist of
the following at December 31:
1997 1996
---------------- ----------------
Capitalized lease obligations $ 128.9 $ 136.6
Non-interest-bearing advances from customers 175.4 184.2
Promissory notes with interest rates ranging
from 6.1% to 8.7% in 1997 and 5.8% to 8.7% in 1996 23.7 20.7
---------------- ----------------
$ 328.0 $ 341.5
================ ================
F-16
17
NOTE 10--OBLIGATIONS OF PROJECT MINING SUBSIDIARIES - Continued
Advances from customers are used to develop, operate and provide for the ongoing
working capital needs of certain Project Mining Subsidiaries. The maturity
schedule established by the customer is as follows: $9.1 million in 1998, $10.0
million in 1999, $10.0 million in 2000, $10.0 million in 2001, $10.0 million in
2002 and $66.6 million thereafter. A maturity schedule for the remaining portion
of the advances has not been established by the customer. The annual maturities
of the promissory notes are: $3.4 million in 1998, $3.2 million in 1999, $3.2
million in 2000, $2.7 million in 2001, $2.1 million in 2002 and $12.5 million
thereafter.
Interest paid was $12.8 million, $13.6 million and $14.3 million during 1997,
1996 and 1995, respectively. The cost of coal, which is passed through to the
utility customers, includes interest expense.
The Project Mining Subsidiaries' capital lease obligations for mining equipment
have the following future minimum lease payments at December 31, 1997:
1998 $ 22.7
1999 22.3
2000 21.3
2001 20.8
2002 19.2
Subsequent to 2002 104.4
----------------
Total minimum lease payments 210.7
Amounts representing interest (69.6)
----------------
Present value of net minimum
lease payments 141.1
Current maturities (12.2)
----------------
$ 128.9
================
Interest expense and amortization in excess of annual lease payments are
deferred and recognized in years when annual lease payments exceed interest
expense and amortization.
Project mining assets recorded under capital leases are included in Property,
Plant and Equipment and consist of the following at December 31:
1997 1996
---------------- ---------------
Plant and equipment $ 198.4 $ 198.7
Less accumulated amortization 94.6 87.1
---------------- ---------------
$ 103.8 $ 111.6
================ ===============
During 1997, 1996 and 1995, the Project Mining Subsidiaries incurred capital
lease obligations of $6.4 million, $1.8 million and $18.0 million, respectively,
in connection with lease agreements to acquire plant and equipment.
The above obligations are secured by substantially all owned assets of the
respective Project Mining Subsidiary and the assignment of all rights under its
coal sales agreement.
F-17
18
NOTE 11--LEASE COMMITMENTS
The Company leases certain office, manufacturing and warehouse facilities,
retail stores and machinery and equipment under noncancellable operating leases
which expire at various dates through 2009. Future minimum operating lease
payments, excluding Project Mining Subsidiaries, at December 31, 1997, are as
follows:
1998 $ 21.9
1999 19.7
2000 17.3
2001 14.6
2002 12.4
Thereafter 29.2
--------------
$ 115.1
==============
Rental expense for all operating leases, excluding Project Mining Subsidiaries,
amounted to $25.6 million, $23.6 million and $20.7 million during 1997, 1996 and
1995, respectively.
NOTE 12--SELF-INSURANCE RESERVES AND OTHER
Self-insurance Reserves and Other consisted of the following at December 31:
1997 1996
---------------- ---------------
Present value of UMWA obligation $ 30.8 $ 32.5
Reserve for future interest on UMWA obligation 59.2 61.5
---------------- ---------------
Total undiscounted UMWA obligation 90.0 94.0
Present value of other closed mine obligations 19.5 20.6
Other self-insurance reserves 113.2 109.3
---------------- ---------------
$ 222.7 $ 223.9
================ ===============
The UMWA obligation and the other closed mine obligations relate to Bellaire's
former eastern U.S. underground mining operations and the Indian Head Mine,
which ceased operations in 1992. The obligation to UMWA resulted from the Coal
Act, which requires Bellaire to incur additional costs for retiree medical
expenses of certain United Mine Worker retirees. Annual cash payments of up to
$3.0 million after tax are expected relating to this obligation and could
continue for as long as 40 to 50 years. The Company has recorded this obligation
on an undiscounted basis. The reserve for future interest represents the portion
of this reserve comprising interest costs. The other closed mine obligations
include reserves for land reclamation and site treatment at certain closed
eastern underground and western surface mines, as well as reserves for workers
compensation and black lung benefit costs.
Other self-insurance reserves include product liability reserves, employee
retirement obligations and other miscellaneous reserves.
F-18
19
NOTE 13--FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to the short-term maturities of
these instruments. The fair values of revolving credit agreements and long-term
debt were determined using current rates offered for similar obligations. The
fair values of revolving credit agreements and long-term debt approximated
carrying values at December 31, 1997 and 1996. Financial instruments that
potentially subject the Company to concentration of credit risk consist
principally of accounts receivable and derivatives. Concentration of credit risk
on accounts receivable is mitigated by the large number of customers comprising
the Company's customer base and their dispersion across many different
industries and geographies. The Company enters into derivative contracts with
high-quality financial institutions and limits the amount of credit exposure to
any one institution.
DERIVATIVE FINANCIAL INSTRUMENTS
FOREIGN CURRENCY DERIVATIVES: NMHG and HB*PS enter into forward foreign currency
exchange contracts for purposes of hedging their exposure to foreign currency
exchange rate fluctuations. These contracts hedge primarily firm commitments
and, to a lesser degree, forecasted transactions relating to cash flows
associated with sales and purchases denominated in foreign currencies. NMHG and
HB*PS had forward foreign currency exchange contracts outstanding in the amounts
$75.1 million and $1.2 million, respectively, at December 31, 1997, primarily
denominated in Japanese yen, British pounds sterling, French francs and Canadian
dollars. At December 31, 1996, NMHG and HB*PS had forward foreign currency
exchange contracts outstanding in the amounts of $61.1 million and $2.7 million,
respectively, primarily denominated in Japanese yen, Australian dollars, French
francs and Canadian dollars. The amount of deferred loss at December 31, 1997
and 1996 was not material. The fair market value of these contracts was
estimated based on quoted market sources and approximated a net payable of $2.5
million and $2.1 million at December 31, 1997 and 1996, respectively.
INTEREST RATE DERIVATIVES: The following table summarizes the notional amounts,
related rates (including applicable margins) and remaining terms on interest
rate swap agreements outstanding at December 31:
Notional Amount Fixed Rate Paid
--------------------------- --------------------------- Remaining Term at
1997 1996 1997 1996 December 31, 1997
----------- ------------ ------------ ----------- -------------------------------------
NMHG $205.0 $310.0 7.1% 6.4% One to Eight Years
HB*PS 75.0 75.0 6.2% 6.3% One to Two Years
NACoal 11.8 13.9 6.9% 6.9% One to Six Years
KCI 5.0 5.0 7.8% 8.1% Two to Three Years
The fair market value of these interest rate swap agreements, which was obtained
from broker quotes, was a net payable of $6.4 million and $3.8 million at
December 31, 1997 and 1996, respectively.
NOTE 14--CONTINGENCIES
Various legal proceedings and claims have been or may be asserted against NACCO
and certain subsidiaries relating to the conduct of their businesses, including
product liability and environmental claims. These proceedings are incidental to
their ordinary course of business. Management believes that it has meritorious
defenses and will vigorously defend itself in these actions. Any costs that
management estimates will be paid as a result of these claims are accrued when
the liability is considered probable and the amount can be reasonably estimated.
Although the ultimate disposition of these proceedings is not presently
determinable, management
F-19
20
NOTE 14--CONTINGENCIES - Continued
believes, after consultation with its legal counsel, that the likelihood that
material costs will be incurred in excess of accruals already recognized is
remote.
NMHG is subject to recourse or repurchase obligations under various financing
arrangements for certain independently owned retail dealerships. Also, certain
dealer loans are guaranteed by NMHG. When NMHG is the guarantor of the principal
amount financed, a security interest is usually maintained in certain assets of
parties for whom NMHG is guaranteeing debt. Total amounts subject to recourse or
repurchase obligations at December 31, 1997 and 1996 were $156.9 million and
$125.6 million, respectively. Losses anticipated under the terms of the recourse
or repurchase obligations are not significant and have been reserved for in the
Consolidated Financial Statements.
NOTE 15--COMMON STOCK
The Class A common stock has one vote per share and the Class B common stock has
10 votes per share. The total number of authorized shares of Class A common
stock and Class B common stock at December 31, 1997 was 25,000,000 shares and
6,756,176 shares, respectively. Treasury shares of Class A stock totaling
1,630,282 and 1,597,447 at December 31, 1997 and 1996, respectively, have been
deducted from shares issued.
STOCK REPURCHASE PROGRAM: In 1996, the board of directors authorized the
repurchase of up to 1.5 million shares of the Company's Class A common stock.
Pursuant to this authorization, the Company commenced an issuer tender offer
(the "Offer") on November 18, 1996 for the purchase of up to 800,000 Class A
common shares at prices of $43.50 to $50.00 per share. The Offer resulted in the
repurchase of 800,000 shares on December 23, 1996, at $50.00 per share. The
$40.4 million cost of this transaction, including fees and expenses, was
financed using cash on hand and amounts available under revolving credit
facilities. In addition to the Offer, the Company is authorized to purchase up
to 700,000 shares of Class A common stock through an open market share
repurchase program during 1997 and 1998. In 1997, the Company repurchased 53,000
Class A common shares pursuant to this share repurchase program.
The following table summarizes selected unaudited pro forma financial
information assuming that the 800,000 shares repurchased on December 23, 1996
pursuant to the Offer had occurred at the beginning of each period presented.
(Note that diluted earnings per share approximates basic earnings per share.):
1996 1995
------------- -------------
OPERATING RESULTS
Income before extraordinary items $ 49.1 $ 63.9
Net income $ 49.1 $ 92.8
BASIC EARNINGS PER SHARE
Income before extraordinary items $ 6.00 $ 7.83
Extraordinary items -- 3.54
------------- -------------
Net income $ 6.00 $ 11.37
============= =============
AVERAGE SHARES OUTSTANDING 8.183 8.163
STOCK OPTIONS: The 1975 and 1981 stock option plans, as amended, provide for the
granting to officers and other key employees of options to purchase Class A and
Class B common stock of the Company at a price not less than the market value of
such stock at the date of grant. Options become exercisable over a four-year
period and expire 10 years from the date of the grant. At December 31, 1997,
1996 and 1995, all stock options outstanding were exercisable.
F-20
21
NOTE 15--COMMON STOCK - Continued
At December 31, 1997, 1996 and 1995, there were 80,701 Class A shares and 80,100
Class B shares available for grant. In 1997, no options were granted; however,
4,000 Class A share options were exercised. No options were granted or exercised
during 1996 and 1995. At December 31, 1997, 1996 and 1995, there were options
outstanding relating to 1,800, 5,800 and 5,800, respectively, Class A shares
with an option price of $32.00 that were granted on January 12, 1989, and 25,000
Class A shares at an option price of $35.56 granted on March 1, 1989. The
Company does not presently intend to issue additional stock options.
The Company applies AICPA Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for stock options.
Since there have been no options granted in fiscal years 1997, 1996 and 1995, no
additional pro forma disclosures are required as provided in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation."
NOTE 16--EARNINGS PER SHARE
Earnings per share for the years ended December 31, 1996 and 1995 have been
restated to conform with the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share." For purposes of calculating the basic
and diluted earnings per share, no adjustments have been made to the reported
amounts of Income Before Extraordinary Items, Extraordinary Items or Net Income.
The share amounts used for the year ended December 31 are as follows:
1997 1996 1995
------------ ------------ ------------
Basic common shares (weighted average) 8.171 8.920 8.963
Dilutive stock options .018 .011 .012
------------ ------------ ------------
Diluted common shares 8.189 8.931 8.975
============ ============ ============
NOTE 17--INCOME TAXES
The components of income before income taxes and provision for income taxes for
the year ended December 31 are as follows:
1997 1996 1995
------------ ------------- ------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS
Domestic $ 74.6 $ 73.0 $ 79.3
Foreign 14.5 13.3 24.2
------------ ------------- ------------
$ 89.1 $ 86.3 $ 103.5
============ ============= ============
PROVISION FOR INCOME TAXES
Current tax expense:
Federal $ 38.5 $ 29.0 $ 28.4
State 7.4 6.2 4.9
Foreign 3.9 5.6 4.2
------------ ------------- ------------
Total current 49.8 40.8 37.5
------------ ------------- ------------
Deferred tax expense (benefit):
Federal (24.3) (.3) (3.3)
State (2.6) (.9) (.8)
Foreign (2.4) (5.3) 1.3
------------ ------------- ------------
Total deferred (29.3) (6.5) (2.8)
Increase in valuation allowance 5.9 --- ---
------------ ------------- ------------
$ 26.4 $ 34.3 $ 34.7
============ ============= ============
F-21
22
NOTE 17--INCOME TAXES - Continued
Domestic income before income taxes has been reduced by substantially all of the
amortization of goodwill and interest expense.
The Company made income tax payments of $46.4 million, $40.2 million and $48.9
million during 1997, 1996 and 1995, respectively. During the same period, income
tax refunds totaled $2.1 million, $3.3 million and $3.7 million, respectively.
A reconciliation of federal statutory and effective income tax for the year
ended December 31 follows:
1997 1996 1995
------------ ------------ ------------
Income before taxes $ 89.1 $ 86.3 $ 103.5
============ ============ ============
Statutory taxes at 35% $ 31.2 $ 30.2 $ 36.2
Unremitted foreign earnings (15.3) --- ---
Valuation allowance 5.9 --- ---
Amortization of goodwill 4.9 5.1 5.1
State income taxes 3.4 3.3 2.7
Tax audit settlements --- (1.2) (3.1)
Export benefits (.8) (1.8) (1.1)
Percentage depletion (1.6) (1.6) (1.8)
Foreign statutory rate differences (2.2) (.5) (2.3)
Earnings reported net of taxes (.4) (.4) (1.2)
Other-net 1.3 1.2 .2
------------ ------------ ------------
Provision for income taxes $ 26.4 $ 34.3 $ 34.7
============ ============ ============
Effective rate 29.6% 39.7% 33.5%
============ ============ ============
A detailed summary of the total deferred tax assets and liabilities in the
Company's Consolidated Balance Sheets at December 31 resulting from differences
in the book and tax basis of assets and liabilities follows:
1997 1996
------------ -----------
DEFERRED TAX ASSETS
Accrued expenses and reserves $ 55.0 $ 43.7
Reserve for UMWA 33.9 34.5
Employee benefits 18.0 18.1
Net operating loss carryforwards 7.9 9.3
------------ -----------
Total deferred tax assets 114.8 105.6
Less: Valuation allowance (5.9) ---
------------ -----------
108.9 105.6
------------ -----------
DEFERRED TAX LIABILITIES
Depreciation & depletion 46.6 46.8
Unremitted foreign earnings --- 16.7
Inventories 12.4 12.6
Other 13.5 16.1
------------ -----------
Total deferred tax liabilities 72.5 92.2
------------ -----------
Net deferred tax asset $ 36.4 $ 13.4
============ ===========
F-22
23
NOTE 17--INCOME TAXES - Continued
In the fourth quarter of 1997, management determined that the earnings of NMHG's
foreign subsidiaries have been and will be indefinitely reinvested in the
Company's foreign operations and, therefore, concluded that the reserve for
unremitted foreign earnings was no longer required. Certain 1997 events,
including the release of certain covenant restrictions on the NMHG Facility, an
improvement in NMHG's domestic cash flow and the identification of specific
capital investment projects to be undertaken by the foreign operations allowed
management to make these determinations. As a result, an income tax benefit of
$17.4 million was recognized in the fourth quarter of 1997, of which $2.1
million represents the reversal of deferred taxes provided in the first three
quarters of 1997, and $15.3 relates to the reversal of previously provided
deferred taxes on NMHG's unremitted foreign earnings.
The unremitted earnings of foreign subsidiaries are $125.0 million as of
December 31, 1997. Because these earnings have been indefinitely reinvested in
foreign operations, no provision has been made for US income taxes. It is
impracticable to determine the amount of unrecognized deferred taxes with
respect to these earnings; however, foreign tax credits would be available to
reduce U.S. income taxes in the event of a distribution.
The Company periodically reviews the need for a valuation allowance against
certain deferred tax assets and recognizes these assets to the extent that
realization of these assets is more likely than not. Based on a review of
earnings history and trends, forecasted earnings and expiration of
carryforwards, the Company provided a valuation allowance against certain
deferred tax assets. In the fourth quarter of 1997, the Company provided a
valuation allowance of $5.9 million, primarily against foreign net operating
loss carryforwards for which utilization is uncertain. At December 31, 1997, the
Company had $4.1 million of net operating loss carryforwards which expire, if
unused, in years 1998 through 2003 and $3.8 million which are not subject to
expiration.
In 1996 and 1995, the Company reached agreements with various tax authorities
resulting in non-recurring tax benefits of $1.2 million and $3.1 million,
respectively. Additionally, the Company recognized a non-recurring tax benefit
of $2.5 million in 1995 from the remittance of earnings of foreign subsidiaries
subject to rates of tax in excess of the U.S. statutory rate.
The Company and certain of its subsidiaries are currently under examination by
various taxing authorities. The Company has not been informed of any material
assessment resulting from these examinations and will vigorously contest any
material assessment. Management believes that any potential adjustment would not
materially affect the Company's financial condition or results of operations.
F-23
24
NOTE 18--RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PLANS: The Company maintains various defined benefit pension
plans covering most of its employees. These plans provide benefits based on
years of service and average compensation during certain periods. The Company's
policy is to make contributions to fund these plans within the range allowed by
the applicable regulations. Contributions to the various plans were $9.6 million
in 1997, $12.6 million in 1996 and $5.6 million in 1995. Plan assets consist
primarily of publicly traded stocks, investment contracts and government and
corporate bonds.
As of December 31, 1996, pension benefits were frozen for employees covered
under the NMHG and HB*PS plans, except for those NMHG employees participating in
collective bargaining agreements. As a result, a curtailment gain of $1.3
million was recognized in 1996. In addition, the net periodic pension expense in
1997 and in future periods will be significantly reduced. As a result of these
changes, only NACoal employees and certain NMHG employees covered under
collective bargaining agreements will earn retirement benefits under defined
benefit pension plans. Other employees of the Company, including NMHG and HB*PS
employees whose pension benefits were frozen as of December 31, 1996, will
receive retirement benefits under defined contribution retirement plans, as
described below.
Set forth below is a detail of consolidated worldwide net periodic pension
expense and the assumptions used in accounting for the United States defined
benefit plans for the year ended December 31. The United Kingdom plans used
assumptions that are consistent with, but not identical to, those used by the
United States plans.
1997 1996 1995
------------ ------------ -------------
Service cost $ 5.6 $ 8.0 $ 7.9
Interest cost on projected benefit obligation 12.0 11.4 10.4
Actual gain on plan assets (37.0) (13.4) (21.2)
Curtailment gain --- (1.3) ---
Net amortization and deferral of actuarial losses 23.9 2.4 11.7
------------ ------------ -------------
Net periodic pension expense $ 4.5 $ 7.1 $ 8.8
============ ============ =============
Assumptions:
Weighted average discount rates 7.5% 8.0% 7.5%
Rate of increase in compensation levels 4.5% 5.0% 4.5-5.0%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
F-24
25
NOTE 18--RETIREMENT BENEFIT PLANS - Continued
The following sets forth the funded status of the defined benefit plans and
amounts recognized in the Consolidated Balance Sheets at December 31:
1997 1996
------------ ------------
Actuarial present value of benefit obligation:
Vested accumulated benefit obligation $ 133.8 $ 124.1
Non-vested accumulated benefit obligation 8.9 7.7
------------ ------------
Total accumulated benefit obligation 142.7 131.8
Value of future salary projections 19.9 17.2
------------ ------------
Total projected benefit obligation 162.6 149.0
Fair value of plan assets 187.9 150.2
------------ ------------
Plan assets in excess of projected benefit obligation 25.3 1.2
Amounts available to increase (reduce)
future pension expense:
Unamortized balance of the initial
transition amount (8.9) (4.9)
Unamortized cumulative actuarial gain (28.1) (12.4)
Unamortized prior service cost 3.6 3.3
Adjustment for minimum pension liability (4.1) (4.7)
Other 1.0 ---
------------ ------------
Pension liability recognized in
Consolidated Balance Sheets $ (11.2) $ (17.5)
============ ============
DEFINED CONTRIBUTION PLANS: NACCO and its subsidiaries have defined contribution
(401(k)) plans for substantially all employees. For NACCO and certain
subsidiaries, employee contributions are matched by the Company based on plan
provisions. In addition, NACCO and certain other subsidiaries have defined
contribution retirement plans whereby the subsidiary's contribution to
participants is determined annually based on a formula which includes the effect
of actual compared to targeted operating results and the age and compensation of
the participants. Total Company contributions to these plans were $8.9 million
in 1997, $8.8 million in 1996 and $7.3 million in 1995.
NOTE 19--BUSINESS SEGMENTS
NACCO's four operating subsidiaries function in distinct business environments.
Sales between subsidiaries, which are minimal, are eliminated in consolidation.
NACCO and Other includes the accounts of the parent company and Bellaire.
Information relating to the Company's operations at the subsidiary level is
presented below.
F-25
26
NOTE 19--BUSINESS SEGMENTS - Continued
1997 1996 1995
------------ ------------ ------------
REVENUES
NMHG $ 1,488.0 $ 1,560.1 $ 1,510.1
HB*PS 423.1 395.1 381.4
NACoal 262.9 249.1 248.0
KCI 79.0 74.9 69.6
NACCO and Other .2 .3 .5
Eliminations (6.3) (6.3) (5.1)
------------- ------------ ------------
$ 2,246.9 $ 2,273.2 $ 2,204.5
============= ============ ============
GROSS PROFIT
NMHG $ 264.1 $ 247.2 $ 247.8
HB*PS 70.0 68.9 62.4
NACoal 54.2 51.4 55.4
KCI 32.8 31.6 29.5
NACCO and Other (.1) --- ---
------------- ------------ ------------
$ 421.0 $ 399.1 $ 395.1
============= ============ ============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
NMHG $ 173.9 $ 163.1 $ 153.5
HB*PS 42.7 40.8 34.6
NACoal 10.3 11.2 9.7
KCI 29.9 28.4 26.1
NACCO and Other 8.4 9.0 8.8
------------- ------------ ------------
$ 265.2 $ 252.5 $ 232.7
============= ============ ============
AMORTIZATION OF GOODWILL
NMHG $ 11.7 $ 11.5 $ 10.8
HB*PS 4.0 3.8 2.8
KCI .1 .1 .1
------------- ------------ ------------
$ 15.8 $ 15.4 $ 13.7
============= ============ ============
OPERATING PROFIT
NMHG $ 70.5 $ 72.5 $ 83.4
HB*PS 23.3 24.3 25.0
NACoal 43.9 40.3 45.8
KCI 2.8 3.1 3.3
NACCO and Other (8.5) (9.0) (8.8)
------------- ------------ ------------
$ 132.0 $ 131.2 $ 148.7
============= ============ ============
OPERATING PROFIT EXCLUDING GOODWILL AMORTIZATION
NMHG $ 82.2 $ 84.0 $ 94.2
HB*PS 27.3 28.1 27.8
NACoal 43.9 40.3 45.8
KCI 2.9 3.2 3.4
NACCO and Other (8.5) (9.0) (8.8)
------------- ------------ ------------
$ 147.8 $ 146.6 $ 162.4
============= ============ ============
INTEREST EXPENSE
NMHG $ (14.5) $ (25.0) $ (25.9)
HB*PS (6.9) (6.6) (7.2)
NACoal (2.1) (.2) (1.3)
KCI (.4) (.5) (.5)
NACCO and Other (2.3) (.5) (1.6)
Eliminations 2.3 .5 3.3
------------- ------------ ------------
(23.9) (32.3) (33.2)
Project Mining Subsidiaries (12.7) (13.6) (14.0)
------------- ------------ ------------
$ (36.6) $ (45.9) $ (47.2)
============= ============ ============
F-26
27
NOTE 19--BUSINESS SEGMENTS - Continued
1997 1996 1995
------------- ------------ ------------
INTEREST INCOME
NMHG $ 2.2 $ .5 $ .9
HB*PS .1 --- ---
NACoal 3.1 1.5 2.4
NACCO and Other --- --- 1.9
Eliminations (2.3) (.5) (3.3)
------------- ------------ ------------
$ 3.1 $ 1.5 $ 1.9
============= ============ ============
OTHER-NET, INCOME (EXPENSE)
NMHG $ (5.9) $ (2.0) $ (.2)
HB*PS (.2) (.3) (.8)
NACoal (5.1) 1.1 .5
KCI (.1) --- ---
NACCO and Other 1.9 .7 .6
------------- ------------ ------------
$ (9.4) $ (.5) $ .1
============= ============ ============
PROVISION FOR INCOME TAXES
NMHG $ 13.6 $ 19.6 $ 21.5
HB*PS 7.1 6.7 5.3
NACoal 8.1 9.9 10.8
KCI 1.0 1.1 1.2
NACCO and Other (3.4) (3.0) (4.1)
------------- ------------ ------------
$ 26.4 $ 34.3 $ 34.7
============= ============ ============
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS
NMHG $ 38.7 $ 26.4 $ 36.9
HB*PS 9.2 10.7 11.8
NACoal 19.0 19.2 22.6
KCI 1.3 1.5 1.6
NACCO and Other (5.5) (5.8) (4.1)
Minority interest (.9) (1.4) (3.3)
------------- ------------ ------------
61.8 50.6 65.5
Extraordinary gain, net-of-tax --- --- 32.3
Extraordinary charges, net-of-tax --- --- (3.4)
------------- ------------ ------------
$ 61.8 $ 50.6 $ 94.4
============= ============ ============
TOTAL ASSETS
NMHG $ 942.4 $ 950.9 $ 1,052.2
HB*PS 290.8 271.8 288.0
NACoal 51.5 66.5 40.7
KCI 24.9 27.6 25.1
NACCO and Other 59.4 56.7 62.7
------------- ------------ ------------
1,369.0 1,373.5 1,468.7
Project Mining Subsidiaries 423.4 433.6 433.3
------------- ------------ ------------
1,792.4 1,807.1 1,902.0
Consolidating eliminations (63.3) (99.0) (68.2)
------------- ------------ ------------
$ 1,729.1 $ 1,708.1 $ 1,833.8
============= ============ ============
F-27
28
NOTE 19--BUSINESS SEGMENTS - Continued
1997 1996 1995
------------- ------------ ------------
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE
NMHG $ 35.0 $ 33.8 $ 31.8
HB*PS 19.9 19.0 15.8
NACoal 2.4 2.1 1.7
KCI 1.1 1.1 1.0
NACCO and Other .4 .2 .2
------------- ------------ ------------
58.8 56.2 50.5
Project Mining Subsidiaries 29.8 29.1 28.8
------------- ------------ ------------
$ 88.6 $ 85.3 $ 79.3
============= ============ ============
CAPITAL EXPENDITURES
NMHG $ 25.3 $ 42.3 $ 39.4
HB*PS 17.7 15.1 9.7
NACoal 9.1 2.8 3.5
KCI .6 1.1 1.4
NACCO and Other --- 1.4 .1
------------- ------------ ------------
52.7 62.7 54.1
Project Mining Subsidiaries 15.7 16.7 19.0
------------- ------------ ------------
$ 68.4 $ 79.4 $ 73.1
============= ============ ============
DATA BY GEOGRAPHIC AREA
Europe,
United Africa and
States Middle East Other Eliminations Consolidated
---------------- ---------------- ---------------- ---------------- ----------------
1997
----
Sales to unaffiliated
customers $ 1,725.8 $ 398.9 $ 122.2 $ --- $ 2,246.9
Transfers between
geographic areas 29.5 146.8 --- (176.3) ---
---------------- ---------------- ---------------- ---------------- ----------------
Total revenues $ 1,755.3 $ 545.7 $ 122.2 $ (176.3) $ 2,246.9
================ ================ ================ ================ ================
Operating profit $ 112.0 $ 22.6 $ (2.6) $ --- $ 132.0
================ ================ ================ ================ ================
Total assets $ 1,325.7 $ 355.5 $ 47.9 $ --- $ 1,729.1
================ ================ ================ ================ ================
1996
----
Sales to unaffiliated
customers $ 1,560.6 $ 457.5 $ 255.1 $ --- $ 2,273.2
Transfers between
geographic areas 53.2 129.8 --- (183.0) ---
---------------- ---------------- ---------------- ---------------- ----------------
Total revenues $ 1,613.8 $ 587.3 $ 255.1 $ (183.0) $ 2,273.2
================ ================ ================ ================ ================
Operating profit $ 93.5 $ 32.7 $ 5.0 $ --- $ 131.2
================ ================ ================ ================ ================
Total assets $ 1,312.1 $ 336.4 $ 59.6 $ --- $ 1,708.1
================ ================ ================ ================ ================
F-28
29
NOTE 19--BUSINESS SEGMENTS - Continued
Europe,
United Africa and
States Middle East Other Eliminations Consolidated
------ ----------- ----- ------------ ------------
1995
- ----
Sales to unaffiliated
customers $ 1,568.3 $ 426.9 $ 209.3 $ --- $ 2,204.5
Transfers between
geographic areas 63.7 156.1 --- (219.8) ---
---------------- ---------------- ---------------- ---------------- ----------------
Total revenues $ 1,632.0 $ 583.0 $ 209.3 $ (219.8) $ 2,204.5
================ ================ ================ ================ ================
Operating profit $ 106.0 $ 34.8 $ 7.9 $ --- $ 148.7
================ ================ ================ ================ ================
Total assets $ 1,395.3 $ 374.4 $ 64.1 $ --- $ 1,833.8
================ ================ ================ ================ ================
NACCO parent company expense reduced United States operating profit by $8.4
million, $8.9 million and $8.7 million in 1997, 1996 and 1995, respectively. The
Other category above includes Canada, Mexico, South America and Asia-Pacific.
This category, however, does not include the operating results or assets of S-N,
which is accounted for using the equity method.
NOTE 20--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations for the year ended
December 31 is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- ---------------- ---------------- ----------------
1997
- ----
REVENUES
NMHG $ 332.3 $ 377.4 $ 352.3 $ 426.0
HB*PS 75.3 87.2 117.8 142.8
NACoal 58.4 62.4 70.2 71.9
KCI 14.6 16.6 19.6 28.2
NACCO and Other .1 --- .1 ---
Eliminations (1.0) (2.5) (2.6) (.2)
--------------- ---------------- ---------------- ----------------
479.7 541.1 557.4 668.7
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 82.1 100.4 105.8 132.7
--------------- ---------------- ---------------- ----------------
OPERATING PROFIT
NMHG 12.2 24.7 17.6 16.0
HB*PS (2.1) 2.2 8.1 15.1
NACoal 9.0 9.4 13.2 12.3
KCI (1.0) (.5) .7 3.6
NACCO and Other (2.1) (2.0) (2.1) (2.3)
--------------- ---------------- ---------------- ----------------
16.0 33.8 37.5 44.7
--------------- ---------------- ---------------- ----------------
NET INCOME $ 2.8 $ 14.9 $ 14.5 $ 29.6
=============== ================ ================ ================
BASIC EARNINGS PER SHARE $ .35 $ 1.82 $ 1.78 $ 3.63
=============== ================ ================ ================
DILUTED EARNINGS PER SHARE $ .35 $ 1.82 $ 1.78 $ 3.62
=============== ================ ================ ================
F-29
30
NOTE 20--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) - Continued
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- ---------------- ---------------- ----------------
1996
- ----
REVENUES
NMHG $ 420.8 $ 407.6 $ 349.5 $ 382.2
HB*PS 67.9 82.7 109.0 135.5
NACoal 59.1 56.7 61.2 72.1
KCI 12.9 14.6 19.5 27.9
NACCO and Other .1 .1 --- .1
Eliminations (1.3) (.8) (2.2) (2.0)
--------------- ---------------- ---------------- ----------------
559.5 560.9 537.0 615.8
--------------- ---------------- ---------------- ----------------
GROSS PROFIT 99.4 99.9 91.3 108.5
--------------- ---------------- ---------------- ----------------
OPERATING PROFIT
NMHG 26.0 24.7 9.4 12.4
HB*PS (1.0) 4.7 7.0 13.6
NACoal 9.8 7.8 10.5 12.2
KCI (1.2) (.6) 1.0 3.9
NACCO and Other (2.5) (2.6) (1.9) (2.0)
--------------- ---------------- ---------------- ----------------
31.1 34.0 26.0 40.1
--------------- ---------------- ---------------- ----------------
NET INCOME $ 12.9 $ 14.0 $ 7.6 $ 16.1
=============== ================ ================ ================
BASIC EARNINGS PER SHARE $ 1.44 $ 1.56 $ 0.85 $ 1.83
=============== ================ ================ ================
DILUTED EARNINGS PER SHARE $ 1.44 $ 1.56 $ 0.85 $ 1.82
=============== ================ ================ ================
Gross profit has been restated for each of the quarters in 1996 to conform to
1997 presentation. See Note 4 and Note 17 for a discussion of significant
adjustments made in the fourth quarter of 1997.
F-30
31
NOTE 21--PARENT COMPANY CONDENSED BALANCE SHEETS
The condensed balance sheets of NACCO, the parent company, at December 31 are as
follows:
1997 1996
------------ ------------
ASSETS
Current assets $ --- $ .3
Current intercompany accounts receivable, net 12.4 9.1
Other assets .5 .5
Investment in subsidiaries
NMHG 375.8 361.0
HB*PS 127.1 117.8
NACoal 15.1 15.1
KCI 10.8 13.3
Bellaire .8 .9
------------ ------------
529.6 508.1
Property, plant and equipment, net 1.9 2.2
Deferred income taxes 21.2 20.0
------------ ------------
Total Assets $ 565.6 $ 540.2
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 15.2 $ 8.8
Reserve for future interest on UMWA obligation 59.2 61.5
Note payable to Bellaire 39.3 40.5
Notes payable to other subsidiaries 22.6 45.6
Deferred income and other 4.2 4.5
Stockholders' equity 425.1 379.3
------------ ------------
Total Liabilities and Stockholders' Equity $ 565.6 $ 540.2
============ ============
The credit agreements at NMHG, HB*PS and KCI allow the transfer of assets to
NACCO under certain circumstances. The amount of NACCO's investment in NMHG,
HB*PS and KCI that was restricted at December 31, 1997 totals approximately
$417.3 million. There are no restrictions on the transfer of assets from NACoal.
Dividends and advances from subsidiaries are the primary sources of cash for
NACCO.
F-31
32
NACCO INDUSTRIES, INC.
TO THE STOCKHOLDERS OF NACCO INDUSTRIES, INC.
The management of NACCO Industries, Inc. is responsible for the
preparation, content and integrity of the financial statements and related
information contained within this report. The accompanying financial statements
have been prepared in accordance with generally accepted accounting principles
and include amounts that are based on informed judgments and estimates.
The Company's code of conduct, communicated throughout the
organization, requires adherence to high ethical standards in the conduct of the
Company's business.
NACCO Industries, Inc. and each of its subsidiaries maintains a system
of internal controls designed to provide reasonable assurance as to the
protection of assets and the integrity of the financial statements. These
systems are augmented by the selection of qualified financial management
personnel. In addition, an internal audit function periodically assesses the
internal controls.
Arthur Andersen LLP, independent certified public accountants, audits
NACCO Industries, Inc. and its subsidiaries' financial statements. Its audits
are conducted in accordance with generally accepted auditing standards and
provide an objective and independent assessment that helps ensure fair
presentation of the Company's operating results and financial position. The
independent accountants have access to all financial records and related data of
the Company, as well as to the minutes of stockholders' and directors' meetings.
The Audit Committee of the Board of Directors, composed of independent
directors, meets regularly with the independent auditors and internal auditors
to review the scope of their audit reports and to discuss any action to be
taken. The independent auditors and the internal auditors have free and direct
access to the Audit Committee. The Audit Committee also reviews the financial
reporting process and accounting policies of NACCO Industries, Inc. and each of
its subsidiaries.
/s/ Alfred M. Rankin, Jr. /s/ Kenneth C. Schilling
------------------------- ------------------------
Alfred M. Rankin, Jr. Kenneth C. Schilling
Chairman, President and Vice President and
Chief Executive Officer Controller
F-32
33
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
December 31
---------------------------------
1997 1996
------------- -------------
(In millions)
Current assets $ - $ 0.3
Net amounts receivable from subsidiaries 12.4 9.1
Other assets 0.5 0.5
Investment in subsidiaries
NMHG 375.8 361.0
HB*PS 127.1 117.8
NACoal 15.1 15.1
KCI 10.8 13.3
Bellaire 0.8 0.9
------------- -------------
529.6 508.1
Property, plant and equipment, net 1.9 2.2
Deferred income taxes 21.2 20.0
------------- -------------
Total Assets $ 565.6 $ 540.2
============= =============
Current liabilities $ 15.2 $ 8.8
Reserve for future interest on UMWA obligation 59.2 61.5
Note payable to Bellaire 39.3 40.5
Notes payable to other subsidiaries 22.6 45.6
Deferred income and other 4.2 4.5
Stockholders' equity 425.1 379.3
------------- -------------
Total Liabilities and Stockholders' Equity $ 565.6 $ 540.2
============= =============
See Notes to Parent Company Financial Statements.
F-33
34
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF INCOME
Year Ended
December 31
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
(In millions)
Income (expense):
Intercompany interest income $ - $ 0.1 $ 0.2
Intercompany interest expense (2.3) (0.5) (2.7)
Other - net 1.9 0.4 2.1
------------- ------------- -------------
(0.4) -- (0.4)
Administrative and general expenses 8.4 8.9 8.7
------------- ------------- -------------
Loss before income taxes (8.8) (8.9) (9.1)
Income tax benefit (3.4) (3.1) (4.5)
------------- ------------- -------------
Net loss before equity in earnings of
subsidiaries and extraordinary items (5.4) (5.8) (4.6)
Equity in earnings of subsidiaries before
extraordinary items 67.2 56.4 70.1
Extraordinary gain, net-of-tax -- -- 32.3
Extraordinary charge, net-of-tax -- -- (3.4)
------------- ------------- -------------
Net income (loss) $ 61.8 $ 50.6 $ 94.4
============= ============= =============
See Notes to Parent Company Financial Statements.
F-34
35
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF CASH FLOWS
Year Ended
December 31
------------------------------------------
1997 1996 1995
------------- ------------- ------------
(In millions)
Operating activities
Net income (loss) $ 61.8 $ 50.6 $ 94.4
Equity in earnings of subsidiaries (67.2) (56.4) (70.1)
Extraordinary gain, net-of-tax - - (32.3)
Extraordinary charge, net-of-tax - - 3.4
------------- ------------- ------------
Parent company only net loss (5.4) (5.8) (4.6)
Deferred income taxes (1.3) 1.9 (23.6)
Income taxes net of intercompany tax payments 6.0 (0.9) (7.1)
Working capital changes (1.3) 0.8 1.1
Changes in current intercompany amounts (1.8) 1.9 2.3
Changes in reserve for future interest on UMWA obligation (2.3) (2.8) 64.5
Items of income or expense not requiring cash outlays 0.4 - 0.5
------------- ------------- ------------
Net cash provided by (used for)
operating activities (5.7) (4.9) 33.1
Investing Activities
Capital contributions to subsidiaries
NMHG - (1.8) -
Bellaire - - (69.3)
Dividends and advances received from subsidiaries 14.8 55.9 10.3
Notes payable to Bellaire (1.3) (2.7) 27.4
Reduction of investment in Hyster-Yale
12 3/8% debentures - - 4.4
Expenditures for equipment (0.1) (1.4) (0.1)
------------- ------------- ------------
Net cash provided by (used for)
investing activities 13.4 50.0 (27.3)
Financing Activities
Cash dividends (6.3) (6.7) (6.4)
Purchases of treasury stock (2.8) (40.4)
Treasury stock sales under stock option and
directors' compensation plans - net 1.0 1.1 0.8
Other - net 0.1 1.2 (0.2)
------------- ------------- ------------
Net cash used for financing activities (8.0) (44.8) (5.8)
------------- ------------- ------------
Cash and cash equivalents
Increase (decrease) for the period (0.3) 0.3 -
Balance at the beginning of the period 0.3 - -
------------- ------------- ------------
Balance at the end of the period $ - $ 0.3 $ -
============= ============= ============
See Notes to Parent Company Financial Statements.
F-35
36
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY FINANCIAL STATEMENTS
For The Years Ended December 31, 1997, 1996 and 1995
The Notes to Consolidated Financial Statements, included elsewhere in this Form
10-K, are hereby incorporated by reference into these Notes to Parent Company
Financial Statements.
NOTE A - LONG-TERM OBLIGATIONS AND GUARANTEES
NACCO Industries, Inc. ("NACCO" the parent company) is a holding
company which owns four operating subsidiaries. It is NACCO's policy
not to guarantee the debt of such subsidiaries.
NOTE B - CASH DIVIDENDS AND ADVANCES TO NACCO
Dividends received from the subsidiaries were $37.7 million in 1997, $27.2
million in 1996 and $22.6 million in 1995.
NOTE C - CAPITAL CONTRIBUTIONS TO SUBSIDIARIES
The 1995 capital contribution to Bellaire of $69.3 million includes a note
payable of $27.4 million and the assumption of a reserve for future
interest on UMWA obligation, net of deferred taxes, of $41.9 million.
NOTE D - UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in Investment
in and advances from subsidiaries, net was $24.1 million at December 31,
1997.
F-36
37
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
- ------------------------------------------------------------------------------------------------------------------------------------
COL A. COL B. COL C. COL D. COL E.
- ------------------------------------------------------------------------------------------------------------------------------------
Additions (D)
-------------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other Accounts Deductions End of
Description Period Expenses --Describe --Describe Period
- ------------------------------------------------------------------------------------------------------------------------------------
(In millions)
1997
Reserves deducted from asset accounts:
Allowance for doubtful accounts $ 5.0 $ 2.0 $ (0.1) (C) $ 0.6 (A) $ 6.3
Allowance for discounts,
adjustments and returns $ 7.5 $ 16.7 -- $ 16.4 (B) $ 7.8
Valuation allowance against
deferred tax assets $ - $ 5.9 -- -- $ 5.9
1996
Reserves deducted from asset accounts:
Allowance for doubtful accounts $ 4.4 $ 1.9 -- $ 1.3 (A) $ 5.0
Allowance for discounts,
adjustments and returns $ 6.9 $ 15.2 -- $ 14.6 (B) $ 7.5
1995
Reserves deducted from asset accounts:
Allowance for doubtful accounts $ 4.5 $ 1.6 $ 0.1 (C) $ 1.8 (A) $ 4.4
Allowance for discounts,
adjustments and returns $ 6.2 $ 17.3 -- $ 16.6 (B) $ 6.9
<FN>
Note A - Accounts receivable balances written off, net of recoveries.
Note B - Payments.
Note C - Subsidiary's foreign currency translation adjustments and other.
Note D - Balances which are not required to be presented and those which are
immaterial have been omitted.
F-37