XNYS:NC Nacco Industries Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 _______________________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-Q
(Mark One)
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2012
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to                     
Commission file number 1-9172
 
 
NACCO INDUSTRIES, INC.
 
 
 
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
DELAWARE 
 
34-1505819
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
5875 LANDERBROOK DRIVE, CLEVELAND, OHIO 
 
44124-4069
 
 
(Address of principal executive offices)
 
(Zip code)
 
 
 
 
 
 
 
 
(440) 449-9600
 
 
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
 
N/A
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
 
Accelerated filer þ 
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

Number of shares of Class A Common Stock outstanding at July 27, 2012: 6,799,142
Number of shares of Class B Common Stock outstanding at July 27, 2012: 1,590,421



NACCO INDUSTRIES, INC.
TABLE OF CONTENTS

 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


Part I
FINANCIAL INFORMATION
Item 1. Financial Statements

NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
JUNE 30
2012
 
DECEMBER 31
2011
 
(In millions, except share data)
ASSETS
 

 
 
Current Assets
 

 
 
Cash and cash equivalents
$
303.2

 
$
338.6

Accounts receivable, net
416.8

 
464.5

Inventories, net
474.8

 
470.3

Deferred income taxes
22.5

 
30.7

Prepaid expenses and other
46.8

 
39.6

Assets held for sale
10.0

 
31.4

Total Current Assets
1,274.1

 
1,375.1

Property, Plant and Equipment, Net
274.7

 
254.3

Coal Supply Agreement, Net
56.8

 
57.9

Long-term Deferred Income Taxes
4.0

 
3.5

Other Non-current Assets
95.2

 
110.6

Total Assets
$
1,704.8

 
$
1,801.4

LIABILITIES AND EQUITY
 

 
 
Current Liabilities
 

 
 
Accounts payable
$
396.6

 
$
412.5

Revolving credit agreements - not guaranteed by the parent company
62.7

 
67.0

Current maturities of long-term debt - not guaranteed by the parent company
37.0

 
178.1

Accrued payroll
43.1

 
61.7

Deferred revenue
9.4

 
11.2

Other current liabilities
141.5

 
160.7

Total Current Liabilities
690.3

 
891.2

Long-term Debt - not guaranteed by the parent company
207.8

 
129.1

Pension and other Postretirement Obligations
72.2

 
81.0

Long-term Deferred Income Taxes
3.6

 
12.7

Other Long-term Liabilities
114.2

 
110.4

Total Liabilities
1,088.1

 
1,224.4

Stockholders' Equity
 

 
 
Common stock:
 

 
 
Class A, par value $1 per share, 6,799,142 shares outstanding (2011 - 6,778,346 shares outstanding)
6.8

 
6.8

Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,590,421 shares outstanding (2011 - 1,595,581 shares outstanding)
1.6

 
1.6

Capital in excess of par value
24.3

 
22.7

Retained earnings
657.6

 
619.7

Accumulated other comprehensive loss
(74.4
)
 
(74.6
)
Total Stockholders' Equity
615.9

 
576.2

Noncontrolling Interest
0.8

 
0.8

Total Equity
616.7

 
577.0

Total Liabilities and Equity
$
1,704.8

 
$
1,801.4


See notes to unaudited condensed consolidated financial statements.

2


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
 
(In millions, except per share data)
Revenues
$
773.4

 
$
811.0

 
$
1,576.6

 
$
1,556.5

Cost of sales
633.3

 
673.1

 
1,291.9

 
1,282.0

Gross Profit
140.1

 
137.9

 
284.7

 
274.5

Earnings of unconsolidated mines
10.6

 
9.5

 
22.6

 
21.6

Operating Expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
121.5

 
116.4

 
240.3

 
229.8

Gain on sale of assets
(2.3
)
 
(0.1
)
 
(2.3
)
 
(0.1
)
 
119.2

 
116.3

 
238.0

 
229.7

Operating Profit
31.5

 
31.1

 
69.3

 
66.4

Other (income) expense
 

 
 
 
 
 
 
Interest expense
4.9

 
6.1

 
10.4

 
12.3

Applica settlement and litigation costs

 

 

 
(57.2
)
Other
1.1

 
(1.3
)
 
(0.3
)
 
(2.0
)
 
6.0

 
4.8

 
10.1

 
(46.9
)
Income Before Income Taxes
25.5

 
26.3

 
59.2

 
113.3

Income tax provision
3.7

 
7.2

 
12.2

 
31.4

Net Income
21.8

 
19.1

 
47.0

 
81.9

Net loss attributable to noncontrolling interest

 
0.1

 

 
0.1

Net Income Attributable to Stockholders
$
21.8

 
$
19.2

 
$
47.0

 
$
82.0

 
 

 
 
 
 
 
 
Basic Earnings per Share
$
2.60

 
$
2.29

 
$
5.61

 
$
9.79

Diluted Earnings per Share
$
2.60

 
$
2.28

 
$
5.60

 
$
9.76

 
 
 
 
 
 
 
 
Dividends per Share
$
0.5475

 
$
0.5325

 
$
1.0800

 
$
1.0550

 
 

 
 
 
 
 
 
Basic Weighted Average Shares Outstanding
8.388

 
8.393

 
8.383

 
8.376

Diluted Weighted Average Shares Outstanding
8.400

 
8.407

 
8.397

 
8.403

 
 
 
 
 
 
 
 
Comprehensive Income
$
9.5

 
$
28.4

 
$
47.2

 
$
100.5


See notes to unaudited condensed consolidated financial statements.

3


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
SIX MONTHS ENDED
 
JUNE 30
 
2012
 
2011
 
(In millions)
Operating Activities
 

 
 
Net income
$
47.0

 
$
81.9

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
Depreciation, depletion and amortization
20.6

 
22.9

Amortization of deferred financing fees
1.6

 
1.4

Deferred income taxes
(5.0
)
 
11.3

Gain on sale of assets
(2.3
)
 
(0.1
)
Other non-current liabilities
(0.9
)
 
(3.7
)
Other
13.3

 
9.4

Working capital changes:
 

 
 
Accounts receivable
42.8

 
7.2

Inventories
(11.0
)
 
(31.9
)
Other current assets
(7.4
)
 
(8.2
)
Accounts payable
(12.1
)
 
(13.2
)
Other current liabilities
(34.9
)
 
(21.1
)
Net cash provided by operating activities
51.7

 
55.9

 
 

 
 
Investing Activities
 

 
 
Expenditures for property, plant and equipment
(40.3
)
 
(16.5
)
Proceeds from the sale of assets
23.7

 
0.7

Proceeds from note receivable
14.4

 

Net cash used for investing activities
(2.2
)
 
(15.8
)
 
 

 
 
Financing Activities
 

 
 
Additions to long-term debt
163.9

 
8.3

Reductions of long-term debt
(277.7
)
 
(14.0
)
Net additions to revolving credit agreements
45.4

 
9.8

Cash dividends paid
(9.1
)
 
(8.9
)
Financing fees paid
(6.8
)
 

Purchase of treasury shares
(0.6
)
 

Other
0.1

 

Net cash used for financing activities
(84.8
)
 
(4.8
)
 
 

 
 
Effect of exchange rate changes on cash
(0.1
)
 
4.3

 
 

 
 
Cash and Cash Equivalents
 

 
 
Increase (decrease) for the period
(35.4
)
 
39.6

Balance at the beginning of the period
338.6

 
261.9

Balance at the end of the period
$
303.2

 
$
301.5


See notes to unaudited condensed consolidated financial statements.


4


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
Class A Common Stock
Class B Common Stock
Capital in Excess of Par Value
Retained Earnings
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Cash Flow Hedging
Pension and Postretirement Plan Adjustment
Total Stockholders' Equity
Noncontrolling Interest
Total Equity
 
(In millions, except per share data)
Balance, December 31, 2010
$
6.8

$
1.6

$
22.6

$
475.4

 
$
28.1

 
$
(9.0
)
 
$
(78.1
)
 
$
447.4

 
$
0.8

 
$
448.2

Stock-based compensation


1.3


 

 

 

 
1.3

 

 
1.3

Shares issued under stock compensation plans


0.2


 

 

 

 
0.2

 

 
0.2

Net income attributable to stockholders



82.0

 

 

 

 
82.0

 

 
82.0

Cash dividends on Class A and Class B common stock: $1.0550 per share



(8.9
)
 

 

 

 
(8.9
)
 

 
(8.9
)
Current period other comprehensive income (loss)




 
16.6

 
(7.0
)
 

 
9.6

 

 
9.6

Reclassification adjustment to net income




 

 
5.2

 
3.7

 
8.9

 

 
8.9

Net loss attributable to noncontrolling interest




 

 

 

 

 
(0.1
)
 
(0.1
)
Balance, June 30, 2011
$
6.8

$
1.6

$
24.1

$
548.5

 
$
44.7

 
$
(10.8
)
 
$
(74.4
)
 
$
540.5

 
$
0.7

 
$
541.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
$
6.8

$
1.6

$
22.7

$
619.7

 
$
13.2

 
$
2.6

 
$
(90.4
)
 
$
576.2

 
$
0.8

 
$
577.0

Stock-based compensation


1.8


 

 

 

 
1.8

 

 
1.8

Shares issued under stock compensation plans


0.4


 

 

 

 
0.4

 

 
0.4

Purchase of treasury shares


(0.6
)

 

 

 

 
(0.6
)
 

 
(0.6
)
Net income attributable to stockholders



47.0

 

 

 

 
47.0

 

 
47.0

Cash dividends on Class A and Class B common stock: $1.0800 per share



(9.1
)
 

 

 

 
(9.1
)
 

 
(9.1
)
Current period other comprehensive income (loss)




 
(5.8
)
 
2.3

 

 
(3.5
)
 

 
(3.5
)
Reclassification adjustment to net income




 

 
(0.2
)
 
3.9

 
3.7

 

 
3.7

Net loss attributable to noncontrolling interest




 

 

 

 

 

 

Balance, June 30, 2012
$
6.8

$
1.6

$
24.3

$
657.6

 
$
7.4

 
$
4.7

 
$
(86.5
)
 
$
615.9

 
$
0.8

 
$
616.7


See notes to unaudited condensed consolidated financial statements.

5


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2012
(Tabular Amounts in Millions, Except Per Share and Percentage Data)

Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. Also included is Shanghai Hyster Forklift Ltd., a 75% owned joint venture of Hyster-Yale Materials Handling, Inc., formerly known as NMHG Holding Co. (“NMHG”) in China. The Company's subsidiaries operate in the following principal industries: materials handling, small appliances, specialty retail and mining. The Company manages its subsidiaries primarily by industry.
 
NMHG designs, engineers, manufactures, sells and services a comprehensive line of lift trucks and aftermarket parts marketed globally primarily under the Hyster® and Yale® brand names, mainly to independent Hyster® and Yale® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, The Netherlands, the Philippines, Italy, Japan, Vietnam, Brazil and China. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) 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. The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market coal primarily as fuel for power generation and provide selected value-added services for other natural resources companies.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company as of June 30, 2012 and the results of its operations for the three and six months ended June 30, 2012 and 2011 and the results of its cash flows and changes in equity for the six months ended June 30, 2012 and 2011 have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. generally accepted accounting principles for complete financial statements.

Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2012. Because the HBB and KC businesses are seasonal, a majority of revenues and operating profit typically occurs in the second half of the calendar year when sales of small electric household appliances to retailers and consumers increase significantly for the fall holiday-selling season. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

Note 2 - Recently Issued Accounting Standards

Accounting Standards Adopted in 2012:

On January 1, 2012, the Company adopted authoritative guidance issued by the Financial Accounting Standards Board ("FASB") on fair value measurement. The guidance resulted in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. generally accepted accounting principles and International Financial Reporting Standards. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

On January 1, 2012, the Company adopted authoritative guidance issued by the FASB on the presentation of comprehensive income. The guidance provides an entity with the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income

6


along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity. The adoption of the guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

Reclassifications: Certain amounts in the prior periods' unaudited condensed consolidated financial statements have been reclassified to conform to the current period's presentation.

Note 3 - Restructuring and Related Programs
During 2009, NMHG's management approved a plan to close its facility in Modena, Italy and consolidate its activities into NMHG's facility in Masate, Italy. These actions were taken to further reduce NMHG's manufacturing capacity to more appropriate levels. As a result, NMHG recognized a charge of approximately $5.6 million during 2009. Of this amount, $5.3 million related to severance and $0.3 million related to lease impairment. During 2010, $1.9 million of the accrual was reversed as a result of a reduction in the expected amount to be paid to former employees due to the finalization of an agreement with the Italian government. Severance payments of $0.2 million were made during the first six months of 2012. Payments related to this restructuring program are expected to continue through the remainder of 2012. No further charges related to this plan are expected.
During 2008 and 2009, based on the decline in economic conditions, NMHG's management reduced its number of employees worldwide. As a result, NMHG recognized a charge of approximately $6.3 million in 2008 and $3.4 million in 2009 related to severance. During 2009, $1.1 million of the accrual was reversed as a result of a reduction in the expected amount paid to employees. No severance payments were made under this plan during the first six months of 2012, however payments are expected to be made through early 2013. No further charges related to this plan are expected.

Following is the activity related to the liability for the NMHG programs. Amounts for severance expected to be paid within one year are included on the line “Accrued payroll” in the unaudited condensed consolidated balance sheets.
 
Severance
Balance at January 1, 2012
$
1.4

Payments
(0.2
)
Translation
(0.1
)
Balance at June 30, 2012
$
1.1


Note 4 - Inventories

Inventories are summarized as follows:
 
JUNE 30
2012
 
DECEMBER 31
2011
Manufactured inventories:
 
 
 
Finished goods and service parts - NMHG
$
160.3

 
$
160.3

Raw materials and work in process - NMHG
192.4

 
198.8

Total manufactured inventories
352.7

 
359.1

Sourced inventories - HBB
86.2

 
75.6

Retail inventories - KC
58.6

 
61.5

Total inventories at FIFO
497.5

 
496.2

Coal - NACoal
17.1

 
13.1

Mining supplies - NACoal
12.0

 
11.1

Total inventories at weighted average
29.1

 
24.2

NMHG LIFO reserve
(51.8
)
 
(50.1
)
 
$
474.8

 
$
470.3


The cost of certain manufactured inventories at NMHG, including service parts, has been determined using the last-in-first-out (“LIFO”) method. At June 30, 2012 and December 31, 2011, 32% and 35%, respectively, of total inventories were determined using the LIFO method. An actual valuation of inventory under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management's estimates

7


of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at the end of the year, interim results are subject to the final year-end LIFO inventory valuation.

Note 5 - Current and Long-Term Financing

On March 8, 2012, NMHG entered into an amended and restated credit agreement for a $200.0 million secured, floating-rate revolving credit facility (the "NMHG Facility”). The NMHG Facility expires in March 2017. There were no borrowings outstanding under the NMHG Facility at June 30, 2012. The excess availability under the NMHG Facility, at June 30, 2012, was $190.7 million, which reflects reductions of $9.3 million for letters of credit. The obligations under the NMHG Facility are guaranteed by substantially all domestic subsidiaries and, in the case of foreign borrowings, foreign subsidiaries. The obligations under the NMHG Facility are secured by a first lien on all domestic personal property and assets other than intellectual property, plant, property and equipment (all such property and assets, the “ABL Collateral”) and a second lien on all intellectual property, plant, property and equipment (the “Term Loan Collateral”). The approximate book value of NMHG's assets held as collateral under the NMHG Facility was $685 million as of June 30, 2012.

The maximum availability under the NMHG Facility is governed by a borrowing base derived from advance rates against the inventory and accounts receivable of the borrowers, as defined in the NMHG Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the NMHG Facility. A portion of the availability can be denominated in British pounds or euros. Borrowings bear interest at a floating rate which can be a base rate or LIBOR, as defined in the NMHG Facility, plus an applicable margin. The applicable margins, effective June 30, 2012, for domestic base rate loans and LIBOR loans were 0.75% and 1.75%, respectively. The domestic and foreign floating rates of interest applicable to the NMHG Facility on June 30, 2012 were 4.00% and a range of 2.25% to 3.00%, respectively, including the applicable floating rate margin. The applicable margin, effective June 30, 2012, for foreign overdraft loans was 2.00%. The NMHG Facility also requires the payment of a fee of 0.375% to 0.50% per annum on the unused commitment based on the average daily outstanding balance during the preceding month. At June 30, 2012, the fee was 0.50%.

The NMHG Facility includes restrictive covenants, which, among other things, limit the payment of dividends. NMHG may pay dividends subject to maintaining a certain level of availability prior to and upon payment of a dividend and achieving a minimum fixed charge coverage ratio of 1.10 to 1.00, as defined in the NMHG Facility. The current level of availability required to pay dividends is $40 million. The NMHG Facility also requires NMHG to achieve a minimum fixed charge coverage ratio in certain circumstances if NMHG fails to maintain a minimum amount of availability as specified in the NMHG Facility.At June 30, 2012, NMHG was in compliance with the covenants in the NMHG Facility.

On June 22, 2012, NACCO Materials Handling Group, Inc. ("NMHG, Inc."), a wholly owned subsidiary of NMHG, entered into a new term loan agreement (the “NMHG Term Loan”) that provides for term loans up to an aggregate principal amount of $130.0 million, which mature in December 2017. The proceeds of the NMHG Term Loan, together with available cash on hand, were used to repay NMHG, Inc.'s previous term loan entered into in 2006. The NMHG Term Loan requires quarterly payments of $4.6 million each through September 2017 with the balance of the loan being due in full in December 2017. At June 30, 2012, there was $130.0 million outstanding under the NMHG Term Loan.

The obligations under the NMHG Term Loan are guaranteed by substantially all of NMHG, Inc.’s domestic subsidiaries. The obligations under the NMHG Term Loan are secured by a first lien on the Term Loan Collateral and a second lien on the ABL Collateral. The approximate book value of NMHG, Inc.'s assets held as collateral under the NMHG Term Loan was $685 million as of June 30, 2012, which includes the book value of the assets securing the NMHG Facility.

Outstanding borrowings under the NMHG Term Loan bear interest at a floating rate which can be, at NMHG, Inc.’s option, a base rate plus a margin of 3.00% or LIBOR, as defined in the NMHG Term Loan, plus a margin of 4.00%. The weighted average interest rate on the amount outstanding under the NMHG Term Loan at June 30, 2012 was 5.00%.

The NMHG Term Loan includes restrictive covenants, which, among other things, limit the payment of dividends. NMHG, Inc. may pay dividends subject to maintaining a certain level of availability under the NMHG Facility prior to and upon payment of a dividend and achieving the minimum fixed charge coverage ratio of 1.10 to 1.00. The current level of availability required to pay dividends is $40 million. The NMHG Term Loan also requires NMHG, Inc. to comply with a maximum leverage ratio and a minimum interest coverage ratio. At June 30, 2012, NMHG, Inc. was in compliance with the covenants in the NMHG Term Loan.

NMHG incurred fees and expenses of $5.6 million in the first six months of 2012 related to the amended and restated NMHG

8


Facility and the NMHG Term Loan. These fees were deferred and are being amortized as interest expense over the term of the applicable debt agreements.

On May 31, 2012, HBB entered into an amended and restated credit agreement for a $115.0 million secured, floating-rate revolving credit facility (the “HBB Facility”). The HBB Facility expires in July 2017. Borrowings under the HBB Facility were used to repay HBB's previous term loan entered into in 2007. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $180 million as of June 30, 2012.

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective June 30, 2012, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50%, respectively. The applicable margins, effective June 30, 2012, for base rate loans denominated in Canadian dollars was 0.00%. The HBB Facility also requires a fee of 0.25% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability.

At June 30, 2012, the borrowing base under the HBB Facility was $108.0 million. Borrowings outstanding under the HBB Facility were $41.4 million at June 30, 2012. Therefore, at June 30, 2012, the excess availability under the HBB Facility was $66.6 million. The floating rate of interest applicable to the HBB Facility at June 30, 2012 was 2.09% including the floating rate margin.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends, subject to achieving availability thresholds. Dividends are limited to (i) $15.0 million from the closing date of the HBB Facility through December 31, 2012, so long as HBB has excess availability, as defined in the HBB Facility, of at least $30.0 million; (ii) the greater of $20.0 million or excess cash flow from the most recently ended fiscal year in each of the two twelve-month periods following the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million and maintains a minimum fixed charge coverage ratio of 1.0 to 1.0, as defined in the HBB Facility; and (iii) in such amounts as determined by HBB subsequent to the second anniversary of the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At June 30, 2012, HBB was in compliance with the covenants in the HBB Facility.

HBB incurred fees and expenses of $1.2 million in the first six months of 2012 related to the amended and restated HBB Facility. These fees were deferred and are being amortized as interest expense over the term of the HBB Facility.

Note 6 - 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, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. At June 30, 2012, the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $303.5 million compared with the book value of $302.5 million. At December 31, 2011, the fair value of revolving credit agreements and long-term debt, excluding capital leases, was $369.4 million compared with the book value of $370.7 million.

Derivative Financial Instruments

The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the subsidiaries' functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in accumulated other comprehensive income (loss) (“OCI”). Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements

9


of comprehensive income (loss) in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.

The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are predominately based upon the three-month LIBOR. Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI to the unaudited condensed consolidated statements of comprehensive income (loss) in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of comprehensive income (loss).

Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.

The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Cost of sales” or “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of comprehensive income (loss).

Cash flows from hedging activities are reported in the unaudited condensed consolidated statements of cash flows in the same classification as the hedged item, generally as a component of cash flows from operations.

The Company measures its derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation.

Foreign Currency Derivatives: NMHG and HBB held forward foreign currency exchange contracts with total notional amounts of $318.8 million and $12.2 million, respectively, at June 30, 2012, primarily denominated in euros, British pounds, Japanese yen, Canadian dollars, Brazilian real, Mexican pesos, Swedish kroner and Australian dollars. NMHG and HBB held forward foreign currency exchange contracts with total notional amounts of $395.6 million and $15.6 million, respectively, at December 31, 2011, primarily denominated in euros, British pounds, Japanese yen, Canadian dollars, Australian dollars, Swedish kroner and Mexican pesos. The fair value of these contracts approximated a net asset of $4.2 million and $5.2 million at June 30, 2012 and December 31, 2011, respectively.

Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in OCI. Based on market valuations at June 30, 2012, $5.1 million of the amount included in OCI is expected to be reclassified as income into the consolidated statement of comprehensive income (loss) over the next twelve months, as the transactions occur.

Interest Rate Derivatives: NMHG and HBB have interest rate swap agreements that hedge interest payments on their three-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of active interest rate swap agreements at June 30, 2012 and December 31, 2011:
 
Notional Amount
 
Average Fixed Rate
 
 
 
JUNE 30
2012
 
DECEMBER 31
2011
 
JUNE 30
2012
 
DECEMBER 31
2011
 
Remaining Term at June 30, 2012
NMHG
$
104.5

 
$
204.5

 
4.2
%
 
4.5
%
 
Various, extending to February 2013
HBB
$
25.0

 
$
40.0

 
4.1
%
 
4.6
%
 
Various, extending to June 2013


10


In connection with the refinancing of NMHG's term loan during the second quarter of 2012, NMHG determined that the hedged forecasted transactions were no longer probable of occurring. As such, NMHG recognized a loss of $1.4 million related to the ineffectiveness of NMHG's interest rate swap agreements. These expenses are recorded in the unaudited condensed consolidated statement of comprehensive income (loss) on the line “Other”.

The fair value of all interest rate swap agreements was a net liability of $2.8 million and $7.3 million at June 30, 2012 and December 31, 2011, respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in OCI. Based on market valuations at June 30, 2012, $0.5 million of the amount included in OCI is expected to be reclassified as expense into the consolidated statement of comprehensive income (loss) over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements. The interest rate swap agreements held by HBB on June 30, 2012 are expected to continue to be effective as hedges.

The following table summarizes the fair value of derivative instruments reflected on a gross basis at June 30, 2012 and December 31, 2011 as recorded in the unaudited condensed consolidated balance sheets:

 
Asset Derivatives
 
Liability Derivatives
 
Balance Sheet Location
 
JUNE 30
2012
 
DECEMBER 31
2011
 
Balance Sheet Location
 
JUNE 30
2012
 
DECEMBER 31
2011
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
Current
Other current liabilities
 
$

 
$

 
Other current liabilities
 
$
0.9

 
$
5.5

Long-term
Other long-term liabilities
 

 

 
Other long-term liabilities
 

 
1.8

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 
5.4

 
8.1

 
Prepaid expenses and other
 
1.1

 
2.4

 
Other current liabilities
 
0.6

 
1.3

 
Other current liabilities
 
1.2

 
2.1

Total derivatives designated as hedging instruments
 
$
6.0

 
$
9.4

 
 
 
$
3.2

 
$
11.8

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
Current
Other current liabilities
 
$

 
$

 
Other current liabilities
 
$
1.9

 
$

Long-term
Other long-term liabilities
 

 

 
Other long-term liabilities
 

 

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 
2.3

 
1.4

 
Prepaid expenses and other
 
1.1

 
0.8

 
Other current liabilities
 
0.5

 
0.2

 
Other current liabilities
 
1.2

 
0.5

Total derivatives not designated as hedging instruments
 
$
2.8

 
$
1.6

 
 
 
$
4.2

 
$
1.3

Total derivatives
 
 
$
8.8

 
$
11.0

 
 
 
$
7.4

 
$
13.1


11


The following table summarizes the pre-tax impact of derivative instruments for the three and six months ended June 30 as recorded in the unaudited condensed consolidated statements of comprehensive income (loss):
 
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)
 
Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
 
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
 
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
THREE MONTHS
 
SIX MONTHS
 
 
 
THREE MONTHS
 
SIX MONTHS
 
 
 
THREE MONTHS
 
SIX MONTHS
Derivatives in Cash Flow Hedging Relationships
2012
 
2011
 
2012
 
2011
 
 
 
2012
 
2011
 
2012
 
2011
 
 
 
2012
 
2011
 
2012
 
2011
Interest rate swap agreements
$
0.3

 
$
(1.3
)
 
$

 
$
(1.6
)
 
Interest expense
 
$
(1.5
)
 
$
(2.6
)
 
$
(3.9
)
 
$
(5.4
)
 
Other
 
$
(1.4
)
 
$

 
$
(1.4
)
 
$

Foreign currency exchange contracts
2.0

 
(1.1
)
 
2.3

 
(5.0
)
 
Cost of sales
 
2.2

 
(1.1
)
 
3.2

 
(0.9
)
 
N/A
 

 

 

 

Total
$
2.3

 
$
(2.4
)
 
$
2.3

 
$
(6.6
)
 
 
 
$
0.7

 
$
(3.7
)
 
$
(0.7
)
 
$
(6.3
)
 
 
 
$
(1.4
)
 
$

 
$
(1.4
)
 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amount of Gain or (Loss) Recognized in Income on Derivative
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THREE MONTHS
 
SIX MONTHS
Derivatives Not Designated as Hedging Instruments
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
2012
 
2011
 
2012
 
2011
Interest rate swap agreements
 
N/A
 
$

 
$

 
$

 
$

Foreign currency exchange contracts
 
Cost of Sales or Other
 
(0.1
)
 
(1.4
)
 
(1.3
)
 
(4.3
)
Total
 
 
 
$
(0.1
)
 
$
(1.4
)
 
$
(1.3
)
 
$
(4.3
)

Note 7 - Unconsolidated Subsidiaries

Nine of NACoal's wholly owned subsidiaries each meet the definition of a variable interest entity: The Coteau Properties Company ("Coteau"); The Falkirk Mining Company ("Falkirk"); The Sabine Mining Company ("Sabine" and collectively with Coteau and Falkirk, the "project mining subsidiaries"); Demery Resources Company, LLC (“Demery”); Caddo Creek Resources Company, LLC (“Caddo Creek”); Camino Real Fuels, LLC (“Camino Real”); Liberty Fuels Company, LLC (“Liberty”); NoDak Energy Services, LLC ("NoDak") and North American Coal Corporation India Private Limited ("NACC India"). The project mining subsidiaries are capitalized primarily with debt financing, which the utility customers have arranged and guaranteed. The obligations of the project mining subsidiaries are without recourse to NACCO and NACoal. Demery, Caddo Creek, Camino Real and Liberty (collectively with the project mining subsidiaries, the "unconsolidated mines") were formed to develop, construct and operate surface mines under long-term contracts. NoDak was formed to operate and maintain a coal processing facility. NACC India was formed to provide technical advisory services to the third-party owners of a coal mine in India. The contracts with the unconsolidated operations' customers allow for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. Although NACoal owns 100% of the equity and manages the daily operations of these entities, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The customers have a controlling financial interest and have the power to direct the activities that most significantly affect the economic performance of the entities. As a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities' financial position or results of operations. The taxes resulting from the earnings of the unconsolidated mines and NoDak are solely the responsibility of the Company. The pre-tax income from the seven unconsolidated mines is reported on the line “Earnings of unconsolidated mines” in the unaudited condensed consolidated statements of comprehensive income (loss), with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the unconsolidated mines above operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "Other" in the "Other (income) expense" section of the unaudited condensed consolidated statement of comprehensive income (loss), with the related income taxes included in the provision for income taxes. The net income from NACC India is reported on the line

12


"Other" in the "Other (income) expense" section of the unaudited condensed consolidated statement of comprehensive income (loss). The investment in the nine unconsolidated operations and related tax position was $18.3 million and $22.0 million at June 30, 2012 and December 31, 2011, respectively, and is included on the line “Other Non-current Assets” in the unaudited condensed consolidated balance sheets. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $4.9 million and $6.3 million at June 30, 2012 and December 31, 2011, respectively.

Summarized financial information for the nine unconsolidated operations is as follows:
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
Revenues
$
135.0

 
$
118.5

 
$
269.4

 
$
232.8

Gross profit
$
18.2

 
$
16.7

 
$
37.4

 
$
35.8

Income before income taxes
$
11.0

 
$
10.2

 
$
23.6

 
$
22.3

Income from continuing operations
$
8.9

 
$
7.6

 
$
18.4

 
$
16.9

Net income
$
8.9

 
$
7.6

 
$
18.4

 
$
16.9


Note 8 - Equity Investments

NMHG has a 20% ownership interest in NMHG Financial Services, Inc. (“NFS”), a joint venture with GE Capital Corporation (“GECC”), formed primarily for the purpose of providing financial services to independent Hyster® and Yale® lift truck dealers and National Account customers in the United States. NMHG's ownership in NFS is accounted for using the equity method of accounting. NFS is considered a variable interest entity; however, the Company has concluded that NMHG is not the primary beneficiary. NMHG does not consider its variable interest in NFS to be significant.

NMHG has a 50% ownership interest in Sumitomo NACCO Materials Handling Company, Ltd. (“SN”), a limited liability company which was formed primarily to manufacture and distribute Sumitomo-Yale lift trucks in Japan and export Hyster®- and Yale®-branded lift trucks and related components and service parts outside of Japan. NMHG purchases products from SN under normal trade terms based on current market prices. NMHG's ownership in SN is also accounted for using the equity method of accounting.

The Company's percentage share of the net income or loss from its equity investments in NFS and SN is reported on the line “Other” in the “Other (income) expense” section of the unaudited condensed consolidated statements of comprehensive income (loss). The Company's equity investments are included on the line “Other Non-current Assets” in the unaudited condensed consolidated balance sheets. At June 30, 2012 and December 31, 2011, NMHG's investment in NFS was $10.6 million and $13.6 million, respectively, and NMHG's investment in SN was $34.5 million and $34.2 million, respectively.

Summarized financial information for these two NMHG equity investments is as follows:
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
Revenues
$
101.0

 
$
102.2

 
$
198.0

 
$
198.4

Gross profit
$
28.6

 
$
29.3

 
$
57.6

 
$
59.6

Income from continuing operations
$
3.6

 
$
2.2

 
$
8.0

 
$
7.3

Net income
$
3.6

 
$
2.2

 
$
8.0

 
$
7.3



13


Note 9 - Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company 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 believes, after consultation with its legal counsel, that the likelihood is remote that material costs will be incurred in excess of accruals already recognized.

Note 10 - Guarantees

Under various financing arrangements for certain customers, including independent retail dealerships, NMHG provides recourse or repurchase obligations such that NMHG would be obligated in the event of default by the customer. Terms of the third-party financing arrangements for which NMHG is providing recourse or repurchase obligations generally range from one to five years. Total amounts subject to recourse or repurchase obligations at June 30, 2012 and December 31, 2011 were $154.3 million and $179.1 million, respectively. As of June 30, 2012, losses anticipated under the terms of the recourse or repurchase obligations were not significant and reserves have been provided for such losses based on historical experience in the accompanying unaudited condensed consolidated financial statements. NMHG generally retains a security interest in the related assets financed such that, in the event NMHG would become obligated under the terms of the recourse or repurchase obligations, NMHG would take title to the assets financed. The fair value of collateral held at June 30, 2012 was approximately $171.3 million based on Company estimates. The Company estimates the fair value of the collateral using information regarding the original sales price, the current age of the equipment and general market conditions that influence the value of both new and used lift trucks. The Company also regularly monitors the external credit ratings of the entities in which it has provided recourse or repurchase obligations. As of June 30, 2012, the Company did not believe there was a significant risk of non-payment or non-performance of the obligations by these entities; however, based upon the economic environment, there can be no assurance that the risk may not increase in the future. In addition, NMHG has an agreement with GECC to limit its exposure to losses at certain eligible dealers. Under this agreement, losses related to $47.4 million of recourse or repurchase obligations for these certain eligible dealers are limited to 7.5% of their original loan balance, or $10.7 million as of June 30, 2012. The $47.4 million is included in the $154.3 million of total amounts subject to recourse or repurchase obligations at June 30, 2012.

Generally, NMHG sells lift trucks through its independent dealer network or directly to customers. These dealers and customers may enter into a financing transaction with NFS or other unrelated third parties. NFS provides debt financing to dealers and lease financing to both dealers and customers. On occasion, the credit quality of a customer or credit concentration issues within GECC may necessitate NMHG providing recourse or repurchase obligations of the lift trucks purchased by customers and financed through NFS. At June 30, 2012, approximately $100.9 million of the Company's total recourse or repurchase obligations of $154.3 million related to transactions with NFS. In addition, in connection with the joint venture agreement, NMHG also provides a guarantee to GECC for 20% of NFS' debt with GECC, such that NMHG would become liable under the terms of NFS' debt agreements with GECC in the case of default by NFS. At June 30, 2012, the amount of NFS' debt guaranteed by NMHG was $150.4 million. NFS has not defaulted under the terms of this debt financing in the past, and although there can be no assurances, NMHG is not aware of any circumstances that would cause NFS to default in future periods.

Note 11 - Product Warranties

NMHG provides a standard warranty on its lift trucks, generally for six to twelve months or 1,000 to 2,000 hours. For certain components in some series of lift trucks, NMHG provides a standard warranty of two to three years or 4,000 to 6,000 hours. HBB provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HBB's customer, the retailer. Generally, the retailer returns those products to HBB for a credit. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

In addition, NMHG sells separately-priced extended warranty agreements which provide a warranty for an additional two to five years or up to 2,400 to 10,000 hours. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which NMHG does business. Revenue received for the sale of extended warranty contracts is deferred and recognized in the same manner as the costs incurred to perform under the warranty contracts.


14


NMHG also maintains a quality enhancement program under which it provides for specifically identified field product improvements in its warranty obligation. Accruals under this program are determined based on estimates of the potential number of claims to be processed and the cost of processing those claims based on historical costs.

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

Changes in the Company's current and long-term warranty obligations, including deferred revenue on extended warranty contracts, are as follows:
 
2012
Balance at January 1
$
48.0

Warranties issued
17.8

Settlements made
(20.8
)
Foreign currency effect
(0.5
)
Balance at June 30
$
44.5


Note 12 - Income Taxes

The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a forecasted annual income tax rate applied to the current quarter's year-to-date pre-tax income or loss. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of the Company's annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company's ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates and certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the estimated effective annual income tax rate.

A reconciliation of the Company's consolidated federal statutory and effective income tax is as follows:
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
Income before income taxes:
$
25.5

 
$
26.3

 
$
59.2

 
$
113.3

Statutory taxes at 35%
$
8.9

 
$
9.2

 
$
20.7

 
$
39.7

Discrete items:
 
 
 
 
 
 
 
NMHG unremitted foreign earnings
(2.1
)
 

 
(2.1
)
 

Other
0.1

 
(0.2
)
 
0.1

 
(0.1
)
 
(2.0
)
 
(0.2
)
 
(2.0
)
 
(0.1
)
Other permanent items:
 
 
 
 
 
 
 
NACoal percentage depletion
(0.9
)
 
(0.5
)
 
(2.2
)
 
(3.3
)
Foreign tax rate differential
(1.4
)
 
(1.1
)
 
(3.3
)
 
(5.0
)
Valuation allowance
(1.4
)
 
(0.8
)
 
(2.4
)
 
(2.3
)
Other
0.5

 
0.6

 
1.4

 
2.4

 
(3.2
)
 
(1.8
)
 
(6.5
)
 
(8.2
)
Income tax provision
$
3.7

 
$
7.2

 
$
12.2

 
$
31.4

Effective income tax rate
14.5
%
 
27.4
%
 
20.6
%
 
27.7
%

During April 2012, the Company received approval from the Internal Revenue Service for an election regarding the U.S. tax treatment of contributions to certain of the Company’s non-U.S. pension plans. As a result of the approval, the Company released $2.1 million of the deferred tax liability provided for unremitted foreign earnings in the second quarter of 2012. In addition, during May 2012, the Company repatriated $50.0 million of the unremitted foreign earnings of its European subsidiaries.

15


Note 13 - Retirement Benefit Plans

The Company maintains various defined benefit pension plans that 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 applicable regulations. Plan assets consist primarily of publicly traded stocks and government and corporate bonds.
Pension benefits are frozen for all employees other than certain NACoal unconsolidated mines' employees and NMHG employees in the United Kingdom and the Netherlands. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The Company previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2011 that it expected to contribute approximately $8.0 million and $5.0 million to its U.S. and non-U.S. pension plans, respectively, in 2012. The Company now expects to contribute approximately $7.6 million and $3.6 million to its U.S. and non-U.S. pension plans, respectively, in 2012.

The Company also maintains health care plans which provide benefits to eligible retired employees. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The components of pension and postretirement (income) expense are set forth below:
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
U.S. Pension
 
 
 
 
 
 
 
Service cost
$

 
$

 
$

 
$

Interest cost
1.7

 
1.9

 
3.4

 
3.7

Expected return on plan assets
(2.4
)
 
(2.5
)
 
(4.8
)
 
(4.8
)
Amortization of actuarial loss
1.7

 
1.5

 
3.3

 
2.8

Amortization of prior service credit
(0.2
)
 
(0.1
)
 
(0.2
)
 
(0.2
)
Total
$
0.8

 
$
0.8

 
$
1.7

 
$
1.5

Non-U.S. Pension
 
 
 
 
 
 
 
Service cost
$
0.7

 
$
0.6

 
$
1.3

 
$
1.1

Interest cost
1.7

 
1.9

 
3.4

 
3.8

Expected return on plan assets
(2.3
)
 
(2.4
)
 
(4.6
)
 
(4.8
)
Amortization of actuarial loss
1.0

 
1.0

 
2.0

 
2.0

Amortization of prior service credit
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Amortization of transition liability
0.1

 
0.1

 
0.1

 
0.1

Total
$
1.1

 
$
1.1

 
$
2.1

 
$
2.1

Postretirement
 
 
 
 
 
 
 
Service cost
$
0.1

 
$
0.1

 
$
0.1

 
$
0.1

Interest cost

 
0.1

 
0.1

 
0.2

Amortization of prior service credit
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Total
$

 
$
0.1

 
$
0.1

 
$
0.2


16


Note 14 - Business Segments

NACCO is a holding company with the following principal subsidiaries: NMHG, HBB, KC and NACoal. See Note 1 for a discussion of the Company's industries and product lines. NACCO's non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire Corporation.
 
The Company has reportable segments for the following three management units: NMHG Americas, NMHG Europe and NMHG Other. NMHG Americas includes its operations in the United States, Canada, Mexico, Brazil and Latin America. NMHG Europe includes its operations in Europe, the Middle East and Africa. NMHG Other includes NMHG's corporate headquarters, its remaining wholly owned dealership and its immaterial operating segments, which include operations in the Asia-Pacific region. Certain amounts are allocated to these geographic management units and are included in the segment results presented below, including product development costs, corporate headquarters expenses, information technology infrastructure costs and NACCO management fees. These allocations among geographic management units are determined by NMHG's corporate headquarters and not directly incurred by the geographic operations. In addition, other costs are incurred directly by these geographic management units based upon the location of the manufacturing plant or sales units, including manufacturing variances, product liability, warranty and sales discounts, which may not be associated with the geographic management unit of the ultimate end user sales location where revenues and margins are reported. Therefore, the reported results of each NMHG segment cannot be considered stand-alone entities as all NMHG segments are inter-related and integrate into a single global NMHG business.

Financial information for each of NACCO's reportable segments is presented in the following table. The line “Eliminations” in the revenues section eliminates revenues from HBB sales to KC. The amounts of these revenues are based on current market prices of similar third-party transactions. No other sales transactions occur among reportable segments. Other transactions among reportable segments are recognized based on current market prices of similar third-party transactions.
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
Revenues from external customers
 
 
 
 
 
 
 
NMHG
 
 
 
 
 
 
 
NMHG Americas
$
378.0

 
$
400.8

 
$
772.7

 
$
759.4

NMHG Europe
171.1

 
194.8

 
353.0

 
368.9

NMHG Other
52.9

 
52.4

 
105.8

 
106.3

 
602.0

 
648.0

 
1,231.5

 
1,234.6

HBB
110.7

 
104.3

 
215.6

 
204.9

KC
42.3

 
40.0

 
87.6

 
80.9

NACoal
19.2

 
19.4

 
43.5

 
37.3

NACCO and Other

 

 

 

Eliminations
(0.8
)
 
(0.7
)
 
(1.6
)
 
(1.2
)
Total
$
773.4

 
$
811.0

 
$
1,576.6

 
$
1,556.5

Operating profit (loss)
 

 
 

 
 
 
 
NMHG
 

 
 

 
 
 
 
NMHG Americas
$
14.2

 
$
24.6

 
$
32.8

 
$
46.9

NMHG Europe
9.5

 
3.5

 
19.1

 
9.2

NMHG Other
0.9

 
(0.6
)
 
2.5

 
1.8

 
24.6

 
27.5

 
54.4

 
57.9

HBB
5.1

 
3.6

 
7.2

 
6.9

KC
(5.1
)
 
(4.3
)
 
(9.7
)
 
(9.7
)
NACoal
9.2

 
5.3

 
21.1

 
14.8

NACCO and Other
(2.3
)
 
(1.1
)
 
(3.8
)
 
(3.6
)
Eliminations

 
0.1

 
0.1

 
0.1

Total
$
31.5

 
$
31.1

 
$
69.3

 
$
66.4


17


 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2012
 
2011
 
2012
 
2011
Net income (loss) attributable to stockholders
 
 
 
 
 
 
 
NMHG
 
 
 
 
 
 
 
NMHG Americas
$
8.0

 
$
18.3

 
$
20.2

 
$
34.7

NMHG Europe
9.1

 
3.2

 
18.0

 
8.5

NMHG Other
2.4

 
(2.3
)
 
2.5

 
(1.7
)
 
19.5

 
19.2

 
40.7

 
41.5

HBB
2.2

 
1.3

 
3.2

 
2.3

KC
(3.2
)
 
(2.7
)
 
(6.0
)
 
(6.0
)
NACoal
7.1

 
4.6

 
16.3

 
11.7

NACCO and Other
(2.2
)
 
(1.0
)
 
(3.6
)
 
33.7

Eliminations
(1.6
)
 
(2.2
)
 
(3.6
)
 
(1.2
)
Total
$
21.8

 
$
19.2

 
$
47.0

 
$
82.0


Note 15 - Other Events and Transactions

NACoal: During the second quarter of 2010 and the third quarter of 2011, NACoal entered into agreements to sell $31.4 million of assets, primarily two draglines. During the first quarter of 2012, NACoal sold a dragline for $20.2 million, which approximated book value. The remaining sales of the assets are expected to occur in 2012. These assets have been classified as held for sale in the unaudited condensed consolidated balance sheet at June 30, 2012 and December 31, 2011.

NACCO and Other: In 2006, the Company 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 the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011.
Litigation costs related to the failed transaction with Applica were $2.8 million during the first six months of 2011.

Hyster-Yale Spin-Off: On June 28, 2012, Hyster-Yale Materials Handling, Inc., which will be known as Hyster-Yale after the spin-off, filed a registration statement with the U.S. Securities and Exchange Commission relating to a proposed spin-off by NACCO of its materials handling business to its stockholders. Hyster-Yale Materials Handling, Inc., as an independent public company, will own and operate the Company's materials handling business.

In the proposed spin-off, it is contemplated that NACCO stockholders, in addition to retaining their shares of NACCO common stock, will receive one share of Hyster-Yale Materials Handling, Inc. Class A common stock and one share of Hyster-Yale Materials Handling, Inc. Class B common stock for each share of NACCO Class A common stock and Class B common stock they own. The transaction is expected to be tax-free to NACCO and its stockholders and is expected to close in the third quarter of 2012.

The Company expects to reclassify NMHG's results as discontinued operations when the spin-off is completed.


18


Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Per Share and Percentage Data)

NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”) operate in the following principal industries: materials handling, small appliances, specialty retail and mining. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.

Hyster-Yale Materials Handling, Inc., formerly known as NMHG Holding Co. ("NMHG") designs, engineers, manufactures, sells and services a comprehensive line of lift trucks and aftermarket parts marketed globally primarily under the Hyster® and Yale® brand names, mainly to independent Hyster® and Yale® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Mexico, The Netherlands, the Philippines, Italy, Japan, Vietnam, Brazil and China. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) 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. The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market coal primarily as fuel for power generation and provide selected value-added services for other natural resources companies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Please refer to the discussion of the Company's Critical Accounting Policies and Estimates as disclosed on pages 39 through 42 in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. The Company's Critical Accounting Policies and Estimates have not materially changed since December 31, 2011.


19


HYSTER-YALE MATERIALS HANDLING, INC.

FINANCIAL REVIEW

The results of operations for NMHG were as follows for the three and six months ended June 30:
 
THREE MONTHS
 
SIX MONTHS
 
2012
 
2011
 
2012
 
2011
Revenues