Hamilton Beach 2011 Annual Report Download - page 7

NMHG, HBB and NACoal all had
strong returns on capital employed(3)
(“ROTCE”) on a net debt basis of 26.4
percent, 27.7 percent and 17.1 percent,
respectively, with only Kitchen Collection
falling below an acceptable level at 3.1
percent. Consolidated NACCO’s ROTCE,
excluding the Applica litigation settlement,
was 22.2 percent.
In addition to the substantial increase
in net income, each of NACCO’s subsidiaries
generated strong positive cash flow before
financing activities totaling $122.5 million
in 2011, much higher than the $57.3
million generated in 2010. Also during
2011, NACoal put in place a favorable
credit agreement and paid substantial
dividends of $72.9 million to NACCO, while
HBB voluntarily prepaid $60 million on its
term loan. NACCO will continue to focus
on maximizing cash flow before financing
activities and expects continued strong
cash flow generation from all businesses
in 2012.
NACCO’s stock price, like the overall
stock market, has been very volatile in the
past year – reaching as high as $132.69
in February 2011 and as low as $56.53 in
October 2011, with an average of $91.56
for the year. Given the Company’s strong
position in the industries it competes in,
NACCO hopes for enhanced valuation as
it continues to successfully execute its
strategies to enable its subsidiaries to
reach their financial targets. NACCO’s
Board of Directors in November 2011
approved the repurchase of up to $50
million of the Company’s outstanding
Class A common stock. The authorization
for the repurchase program expires on
December 31, 2012. The share repurchase
program does not require the Company
to acquire any specific number of shares.
As of December 31, 2011, NACCO had
purchased 24,406 shares at an average
price of $84.53 per share.
Market conditions for NACCO’s
subsidiaries are moderating or uncertain
at this time and each subsidiary is
proceeding cautiously and monitoring
conditions closely. The global lift truck
market is expected to moderate in 2012,
resulting in volumes at NMHG comparable
to 2011. While continued improvement
in consumer confidence is expected,
selling to the mass-market consumer is
expected to remain challenging at HBB
and Kitchen Collection. In addition, rising
commodity costs are expected to create
margin pressures at HBB and NMHG
since recovering these cost increases
through price increases in the prevailing
market conditions will be challenging.
Coal deliveries are expected to be higher
in 2012, provided NACoal’s customers
continue to achieve currently planned
power plant operating levels, but the lime-
rock market in southern Florida is expected
to continue to be depressed by weak local
housing and construction markets. In light
of these anticipated market conditions,
the Company expects earnings at NMHG
to be down compared with 2011 but up
modestly at the other subsidiaries, resulting
in an overall decrease in consolidated
earnings, excluding the Applica settlement.
Subsidiary Financial Objectives
Each of NACCO’s subsidiary companies
has specific long-term financial objectives
(see below for specific goals). In 2011,
NACoal met its ROTCE objective. NMHG
made significant progress toward its
operating profit margin target as global
markets improved, volumes increased and
costs were contained. Despite a significant
improvement in economic performance,
NMHG is still well below its operating profit
margin target. Achieving NMHG’s target
operating profit margin will require higher
factory capacity utilization brought about by
increases in market share and achieving
target margins on certain products, partic-
ularly smaller internal combustion engine
products. It is difficult to provide a timetable
for achieving NMHG’s financial target.
However, market improvements, NMHG’s
programs and substantial operating
leverage have established a strong platform
for achieving NMHG’s operating profit
margin target in the future. HBB had sound
operating profit but fell well below its long-
term operating profit margin target. Kitchen
Collection also fell well below its target. At
both HBB and Kitchen Collection, operating
profits and related operating profit margins
declined compared with 2010. Looking
forward, HBB and the Kitchen Collection®
store format are expected to continue
to produce sound results but will need
additional sales volumes to achieve their
targets. The Le Gourmet Chef®stores
are not expected to achieve their target
objective until sales volumes increase
and additional underperforming stores
have been closed. As each of NACCO’s
subsidiaries proceeds with specific
programs designed to reach its financial
objectives and market conditions continue
to improve, the Company expects that its
subsidiaries’ operating fundamentals will
position each to achieve or maintain its
long-term financial goals.
Four
(3) See page eighteen for the calculation of return on capital employed.
Subsidiary Financial Objectives
• NMHG: Achieve an operating profit margin of 9 percent at the peak of the market cycle,
and an average operating profit margin of 7 percent mid-cycle.
• HBB: Achieve a minimum operating profit margin of 10 percent.
• Kitchen Collection: Achieve a minimum operating profit margin of 5 percent.
•NACoal: Earn a minimum return on capital employed of 13 percent, attain positive Economic
Value Income from all existing consolidated mining operations and any new projects,
maintain or increase the profitability of all existing unconsolidated mining operations and
achieve substantial income growth by developing new mining ventures.
• All businesses: Generate substantial cash flow before financing activities.