Hamilton Beach 2012 Annual Report Download - page 12

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basis were realized at NACoal (17.3
percent) and HBB (29.4 percent) but
Kitchen Collection had a negative return
of 6.1 percent. The Company generated
cash flow before financing activities from
continuing operations of $10.7 million
in 2012 as strong positive cash flow
before financing activities at HBB
was offset by negative cash flow before
financing activities at NACoal, primarily
due to the cash paid of $69.3 million for
the acquisition of Reed Minerals. Cash
flow before financing activities from
continuing operations of $83.8 million
generated in 2011 included the receipt
of $60 million for the Applica litigation
settlement. The Company’s cash posi-
tion at December 31, 2012 was strong
at $139.9 million despite paying both a
special dividend of $3.50 per share and
a regular quarterly dividend of $0.25
per share to stockholders on December
14, 2012, which used $31.4 million of
cash. Consolidated debt as of December
31, 2012 increased to $177.7 million
from $148.2 million as of December 31,
2011, largely as a result of the Reed
Minerals acquisition. NACCO expects
strong cash flow before financing activ-
ities from NACoal and HBB in 2013
and modest cash flow before financing
activities at Kitchen Collection.
On the first trading day of 2012,
NACCO’s stock price closed at $91.43.
The stock reached a high of $129.20 in
July 2012 following the announcement
of the spin-off of the materials handling
business, and closed on September
28, 2012 at $125.41. The spin-off was
completed after the market closed on
September 28th when the Company
distributed one share of Hyster-Yale
Class A common stock and one share
of Hyster-Yale Class B common stock
to NACCO stockholders for each share
of NACCO Class A common stock or
Class B common stock owned. Post-
spin, NACCO’s stock opened at $41.50
and achieved an average price of $53.31
for the fourth quarter of 2012. Hyster-
Yale’s stock (NYSE: HY) opened at
$40.00 per share on its first day of
trading and achieved an average price
of $42.74 for the fourth quarter of 2012.
Combining the value of one NACCO
share with the value of two Hyster-Yale
shares, in line with the distribution in
the spin-off, equals a combined opening
value of $121.50 per share on the first
day after the spin-off and $138.79 per
share on average for the fourth quarter.
Share prices for NACCO and Hyster-
Yale on March 4, 2013 were $57.91 and
$51.93, respectively, equaling $161.77
per share on a similarly calculated “one
NACCO share plus two Hyster-Yale
shares” basis.
NACCO’s objective is to realize
improved valuation over time as the
Company executes its strategies for
growth and to reach its subsidiaries’
financial targets. In addition, in Novem-
ber 2012, NACCO’s Board of Directors
approved an extension of the Company’s
stock repurchase program through
December 31, 2013. The stock repur-
chase program permits the repurchase
of up to $50 million of the Company’s
outstanding Class A common stock.
The share repurchase program does
not require the Company to acquire
any specific number of shares. As of
December 31, 2012, NACCO had pur-
chased a total of 75,074 shares since the
buyback’s inception, including 30,851
shares purchased before the spin-off
at an average price of $85.59 per share
and 44,223 shares purchased after the
spin-off at an average price of $58.76
per share.
Subsidiary Financial
Objectives
Each of NACCO’s subsidiary com-
panies has specific long-term financial
objectives (described on page 8). In
2012, NACoal met its ROTCE objective
but fell short of its other objectives.
Continued improvements in perform-
ance at NACoal’s Mississippi Lignite
Mining Company (“MLMC”) and the
integration and expected growth of
Reed Minerals are anticipated to help
NACoal achieve all of its objectives.
HBB had sound operating profit but
fell below its long-term operating profit
margin target. Kitchen Collection fell
well below its operating profit margin
target and declined substantially
compared with 2011. Looking forward,
HBB is expected to continue to improve
results but will need additional sales
volumes through execution of its strate-
gic initiatives, or possibly through a
synergistic partnership or acquisition
to reach its target. Kitchen Collection’s
goal will be difficult to achieve if the
Le Gourmet Chef®stores continue to
struggle and customer visits to outlet
malls fail to recover. The Kitchen
Collection®store format is expected to
continue to produce sound results over
time but the Le Gourmet Chef®stores
are not expected to achieve their target
objective until sales volumes increase
and additional underperforming stores
have been closed. As each of NACCO’s
subsidiaries executes its strategic
initiatives, the Company expects that
its subsidiaries will be positioned to
achieve or exceed their long-term
financial goals.