Hamilton Beach 2007 Annual Report Download - page 9

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2008. This decline could delay the timeframe for reaching those
targets. Nevertheless, HBB is expected to continue to drive
innovation in current and new markets while KC is expected to
focus on improving Le Gourmet Chef (“LGC”) logistics and
profitability in order to meet KC’s LGC acquisition-related targets.
NACoal has also been approaching its financial targets.
This subsidiary has strong operations, although the company
expects to be affected in 2008 by temporarily reduced customer
requirements in both coal and limerock operations. NACoal’s
focus is on continually improving current operations while
aggressively pursuing a variety of new business opportunities.
As profit improvement and growth programs are pursued,
NACCO maintains high expectations for returns on equity and
returns on total capital employed. These financial measures,
which were strong in 2007 at HBB and NACoal but well short
of targets at KC and NMHG, are expected to improve at all
NACCO subsidiaries over time to meet the specific financial
targets established several years ago.
This letter provides a short summary of each subsidiary’s
market situation, strategies, key performance improvement
programs and outlook, and concludes with an overall outlook
for NACCO Industries. The subsidiary letters found later in this
Annual Report provide greater detail on the objectives and
timing of key programs, which typically remain consistent
from year to year, and on progress being made toward reaching
each company’s specific financial and growth objectives.
Certainly the recent developments in the U.S. economy
have the potential to affect all of NACCO’s subsidiaries to some
extent in 2008. While each subsidiary’s programs tend to address
key areas of cost reduction and revenue growth, each company
will be closely monitoring market conditions, developing
special contingency plans and taking more aggressive actions
to preserve profitability if required.
NACCO Materials Handling Group
NMHG is a leader in the global lift truck industry and is
committed to building on that success in coming years.
Companies in the global lift truck industry are faced with
increased material costs and unpredictable currency exchange
rates. As a result, NMHG believes it is highly beneficial to execute
more fully its core manufacturing strategy of assembling lift
trucks in the market of sale, and to consider a variety of low-cost
component sourcing options, particularly as new opportunities
arise in lower-cost regions. NMHG is also focused on increasing
manufacturing efficiency and reducing its fixed-cost and overall
In 2007, NACCO’s revenue increased, but net income
decreased compared with 2006. The Company reported net
income of $89.3 million in 2007, or $10.80 per diluted share,
compared with net income of $106.2 million, or $12.89 per
diluted share, in 2006. However, net income for 2006 included
an after-tax extraordinary gain of $12.8 million, which did
not recur in 2007. Revenues for 2007 were $3.6 billion
compared with $3.3 billion for 2006.
NACCO earned income before extraordinary gain in
2007 of $89.3 million, or $10.80 per diluted share, compared
with $93.4 million, or $11.33 per diluted share, in 2006.
Included in the 2007 results were restructuring charges totaling
$8.0 million, or $4.9 million net of taxes of $3.1 million, for
manufacturing restructuring programs implemented at
NMHG. Excluding these restructuring charges, the Company
was able to maintain a consistent level of profitability compared
with the prior year, despite current economic conditions.
Improvements achieved in 2007 were the result of the
continued implementation of key programs, which helped
propel new products into the marketplace, increase production
and supply chain efficiency and, in some cases, lower selling
and administrative costs. However, these improvements
could not offset the effects of a slowing U.S. economy, very
weak markets for housewares products, increases in material
costs and a weak U.S. dollar.
In 2007, NACCO generated $21.7 million in consolidated
cash flow before financing activities, compared with $138.2
million in 2006. Cash flow before financing activities in
2007 was significantly lower than 2006 as a result of higher
working capital requirements and a lack of proceeds on
asset sales, which occurred in 2006.
In 2007, NACCO planned to spin off its Hamilton Beach
Brands (“HBB”) subsidiary to form a new public company,
Hamilton Beach, Inc. However, due to extreme volatility
and uncertainty in U.S. equity markets, in August 2007 the
Company’s Board of Directors decided not to pursue the
spin-off.
Discussion of Results