NACCO Industries, Inc. (NC) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 NACCO Industries Inc. Earnings Conference Call. My name is Vienna and I'll be the coordinator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Christina Kmetko.

Thank you. Good morning, everyone, and thank you for joining us today. Yesterday, a press release was distributed outlining NACCO's results for the fourth quarter and year ended December 31, 2011. If anyone has not received a copy of this earnings release or would like a copy of the 10-K, please give me a call and I will be happy to send you this information. You may also obtain copies of these items on our website at nacco.com Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of NACCO Industries. Also in attendance representing NACCO Industries is Ken Schilling, Vice President and Controller. Al will provide an overview of the quarter and full year and then open up the call to your questions. Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties was set forth in our earnings release and in our 10-K. In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2011 fourth quarter earnings release which is available on our website. I will now turn the call over to Al Rankin. Al?

Thanks, Christy. As you know from looking at the press release, NACCO had net income for $54.4 million in the fourth quarter. That's $6.47 a share. Revenues were $951 million. Those numbers compared with the net income of $38.4 million or $4.59 a share and $866 million of revenue in the previous year. For the full year, net income was $162 million. That's $19.28 a share. Revenues were $3.3 billion. That compared with $79.5 million or $9.53 a share on $2.7 billion of revenues in 2010. If you look at the full year 2011 and the full year 2010 and you compare those after excluding the litigation cost and the settlement from the 2011 numbers and also from the 2010 numbers, the adjusted income was $124.9 million or $14.85 a share for 2011. And that compared with $91.7 million or $10.99 a share for 2010. For the full year, NACCO generated consolidated cash flow before financing activities of $122.5 million. That was comprised of cash provided by operating activities of $155 million and cash used for investing activities of about $33 million. For 2010, NACCO generated consolidated cash flow before financing activities of $57.3 million. So substantial cash flow, free cash flow, cash flow before financing, in both 2010 and substantially increased in 2011. Turning to the individual subsidiary companies, NACCO Materials Handling Group reported net income of $23.6 million. Revenues were $677 million. That compared with $13.3 million net income and $570 million in the fourth quarter of the previous year. The revenues which increased 19% were increased primarily as a result of increased unit volume in the Americas and Europe, a favorable effect of unit price increases implemented late in 2010 and early 2011, primarily in Americas and Europe. Worldwide new unit shipments increased to 27,700 units in the fourth quarter from shipments of approximately 19,600 in the third quarter and shipments of 19,700 a year ago. The backlog was 24,700 units at the end of the year. That compared with 25,600 at the end of the third quarter and 23,000 at end of December of 2010. The fourth quarter net income increased substantially compared with the fourth quarter of 2010, primarily as a result of increased sales volumes of higher margin units and parts, favorable effect of price increases, which more than offset material cost increases, the absence of losses from retail dealerships sold in 2010. And those increases were partially offset by an increase in employee-related expenses resulting from the full restoration in 2011 of compensation and benefits and headcount additions that were required to meet increased volumes and the absence of benefits recognized in 2010 from favorable foreign currency contracts. For the full year 2011, NACCO Materials Handling Group had net income of $82.6 million. Revenues were $2.5 billion. That compared with $32.4 million of net income and $1.8 billion of revenues in 2010. Shipments increased 33% to 79,700 from 60,000 the year before. Cash flow before financing was $38.7 million and that compared to $39 million in the year before. Looking forward, NACCO Materials Handling Group expects global lift truck markets to moderate in 2012 with volume comparable to 2010 in the Americas and Asia Pacific and modest declines in Europe, particularly Western Europe, and in China. Nevertheless, NACCO Materials Handling Group anticipates a slight increase in unit booking and shipment levels in 2012, primarily as a result of new product introductions and marketing programs. Backlog and parts volumes are also expected to remain relatively steady in 2012, but the company will clearly continue to monitor ongoing market conditions. There is a fair amount of uncertainty in markets, especially in Europe, and adjust manufacturing levels as necessary. Although commodity cost stabilized and decreased slightly at the end of the year, these markets are highly volatile and commodity price increases, particularly for steel, are expected over the course of 2012. Price increases already implemented and announced for the first quarter of 2012 are expected to offset a significant portion of those anticipated higher material costs over time. The company's also of course going to continue to monitor economic conditions, their effect on costs and to determine the need for future price increases. It's been a strong year in product development. The new electric-rider and warehouse and internal combustion engine and big truck product development programs are all moving forward, essentially as planned. The new electric lift truck program is bringing a full line of newly designed products to market and expects to launch the final models in the first half of 2012. In addition, NMHG successfully launched a new standard internal combustion engine lift truck in Europe in the third quarter to complement the product launched in the Americas in July of 2010. In mid-year 2011, the company also introduced into certain Latin American markets a new range of UTILEV brand fork lift trucks which are utility fork lift trucks that meet the needs of lower-intensity users. These trucks are expected to be introduced in the global markets over the course of 2012. And finally, stricter diesel emission regulations in certain global markets go into effect in 2012 and NACCO expects to launch a range of lift trucks in 2012 that will include engine systems that meet the new Tier 4 emissions requirements. All of these new products are expected to help increase customer satisfaction, improve revenues and enhance our operating margins. In the context of these new product introductions, the company will continue to focus on improving distribution effectiveness and capitalizing on its product capabilities to gain additional market share. And over the last -- net income is expected to decline materially at NMHG in 2012 compared with 2011 as a result of the absence of one-time items including the elimination of certain post-retirement benefits which benefited 2011 results, adverse currency movements and anticipated shift in sales mix to lower margin markets as well as higher marketing and employee-related expenses. The decrease in net income is expected to occur primarily in the first half of the year with modest improvements in the second half of 2012 compared with the second half of 2011. Results are expected to be down in all major markets except for Brazil. Significant improvements in Brazil are expected to be offset by a decline in North American results. Cash flow before financing activities for the full year 2012 is expected to be higher than 2011 despite a significant increase in capital expenditures in that year compared with 2011. Longer term, NMHG is focused on improving margins and new lift truck units especially in its internal combustion engine business through the introduction of the new products that I described earlier. In addition, NMHG is strategically focused on gaining market share through these new products which meet a broad range of market applications cost effectively and through enhancements of its independent dealer network. Turning to Hamilton Beach, the company reported fourth quarter 2011 net income of $12 million. Revenues were $161 million. That compares with $11.6 million in the previous year and $176 million in revenues for the fourth quarter 2010. Revenues decreased in 2011 primarily as a result of lower unit sales volumes and reduced placements and promotions in the U.S. commercial retail market, mainly at Hamilton Beach's mass market retail customers. Fourth quarter net income was comparable to a year ago, however operating profit declined because sales of higher margin, higher price products and lower employee-related cost did not fully offset the effect of reductions in unit volumes and increased material costs. Lower interest expense resulting from the $60 million prepayment of Hamilton Beach's term loan offset the reduction in operating profit. For the full year 2011, Hamilton Beach had net income of $18.4 million on $493 million of revenue compared with $24.4 million on $515 million of revenue. Looking forward, the middle market portion of the small kitchen appliance market weakened over the course of 2011 and is expected to remain weak in 2012. That's the core market for Hamilton Beach. And Hamilton Beach's target consumer, the middle market mass consumer, continues to struggle with financial concerns and high unemployment rates. As a result, sales volumes in this segment of the U.S. consumer market are expected to remain under pressure. International and commercial product markets are expected to remain strong. And this strength is expected to drive revenue growth in 2012. In addition, Hamilton Beach continues to focus on strengthening its market position through product innovation, promotions, increased placements and branding programs together with appropriate levels of advertising for its highly successful and innovative product lines such as The Scoop, a single serve coffeemaker. Hamilton Beach expects the new Melitta branded beverage appliances introduced in late 2010 as well as The Scoop and the Durathon iron product line, both introduced in late 2011, to continue to gain market position over time as broader distribution is attained. The company is also continuing to introduce innovative products in several small appliance categories, and these products as well as other new introductions in the pipeline for 2012 are expected to positively affect revenues and operating profits. However, as a result of the weak U.S. consumer market, the company currently anticipates only a modest increase in 2012 revenues compared with a year ago. Hamilton Beach anticipates that 2012 cash flow before financing will be modestly lower than 2011, that results from increased working capital to fund revenue growth. Longer term, Hamilton Beach will continue to work to improve revenues and profitability by remaining focused on developing consumer-driven innovative products, improving efficiencies, reducing costs and increasing prices when needed, gaining placements in market share, pursuing additional strategic growth opportunities, particularly in the stronger international and commercial markets. The Kitchen Collection reported net income was $7.6 million on revenues of $91.4 million in the fourth quarter. That compares with $7.2 million on revenues of $88.4 million a year ago. Revenues increased in the fourth quarter primarily as a result of sales at newly opened Kitchen Collection stores and increase in Kitchen Collection comparable store sales. Comparable store sales improved due to increase in customer visits and a higher average sales transaction value as well as an increase in store transactions. This increase was partially offset by a decline in revenues caused by the closure of certain Kitchen Collection and Le Gourmet Chef stores since December 31, 2010. At the end of last year, Kitchen Collection operated 276 stores compared with 268 year ago. And Gourmet Chef operated 61 stores compared with 72 stores a year ago. Net income improved in the fourth quarter compared with the fourth quarter year ago primarily as a result of sales at newly opened Kitchen Collection stores. For the full year 2011, Kitchen Collection reported net income of $1.1 million on revenues of $221 million. That compared with net income of $3.5 million on revenues of $219 million for the year 2010. Looking forward, the uncertain economy, high unemployment rates and fuel prices along with other consumer financial concerns are expected to continue to offset -- to affect consumer sentiment and limit spending levels for Kitchen Collection's target consumer. That will prolong the challenging retail environment through 2012. However, the company expects to have an increased number of Kitchen Collection stores in 2012. And as a result, revenues are expected to increase compared with 2011. Overall, the company expects a modest increase in full year 2012 net income and cash flow before financing activities primarily as a result of the increase in the number of Kitchen Collection stores opened throughout 2011 and new stores expected to be opened in 2012. We do think that the momentum achieved by the new stores in the fourth quarter of 2011 will continue in 2012 and it does expect the improvements in operating results at both store formats as the new stores opened in 2011 gain traction and additional new stores are opened this year. In addition, Kitchen Collection anticipates improvements in operating results as the company continues its ongoing program of closing underperforming stores. Enhanced sales and margins are also expected as a result of further improvements in store formats and layouts at both Kitchen Collection and Le Gourmet Chef stores as a result of further refinements of its promotional office and merchandise mix in both store formats. The renegotiation of store leases and the combination of its 2 distribution centers into one larger, more efficient facility as well as the absence of a number of costs incurred in 2011 are also expected to contribute to improved results. While the company anticipates increased product and transportation costs in 2012, it expects to offset these increased costs through price increases or other actions as they are needed. Longer term, the company will continue to focus on enhancing the sales volume and profitability by refining its store formats, strengthening its merchandise mix, store displays, appearance and optimizing store selling space as well as evaluating and closing underperforming and loss-generating stores as lease contracts permit. The company expects to enhance profitability by achieving store growth in the Kitchen Collection and Le Gourmet Chef outlet and traditional mall formats over the long term, while it maintains disciplined cost control. In the near term, Kitchen Collection expects to focus its growth in the number of stores on the Kitchen Collection format. When adequate profit prospects are demonstrated for the Le Gourmet Chef format, the company's expansion focus will shift to increasing the number of those stores as well. In that regard, 2012 is an important year for validating the improvements in the Kitchen Collection store formats and presentation of merchandise. And our hope is that we can move forward with the growth program with Kitchen Collection stores and expect higher comparable sales. It will also be a significant year for LGC in determining whether the new formats and presentation of merchandise will cause them to be repositioned as successfully as we hope that they will be. North American Coal's net income for the fourth quarter was $11.9 million on revenues of $23.5 million. That compared with net income of $9.2 million on revenues of $34.5 million for the fourth quarter a year ago. And the end of the 2010, North American Coal's contracted San Miguel Mine expired. The fourth quarter results in 2010 included $10.8 million of revenue and $200,000 operating profit related to that mine. Revenues decreased 32% in the fourth quarter compared with the fourth quarter 2010 primarily due to the expiration of that San Miguel contract. Net income in the fourth quarter increased primarily due to lower employee-related costs and an increase in royalty and other income. Decline in the results at the consolidated mining operations mainly as a result of unplanned outage days at a customer's power plant and the higher cost of coal sold as a result of reduced production levels implemented to match customer inventory requirements partially offset the improvement in net income. For the full year, North American Coal reported net income of $29.4 million. Revenues were $81.8 million. That compared with $39.6 million the previous year and revenues of $156.8 million in 2010. Those results of course in 2010 included $45.8 million of revenue and $1.1 million of operating profit related to the San Miguel Mine. 2010 also included income of $7.4 million or $4.4 million after-tax that was related to the reimbursement of previously recognized costs for predevelopment activities from Mississippi Power Company. In 2011, North American Coal generated cash flow before financing activities of $21 million compared with $32.8 million in the year before. Now looking forward, North American Coal expects improved operating performance at its coal mining operations in 2012. Tons delivered are expected to be slightly higher, and 2011 provided customers are cheap, currently plan power plant operating levels. Limerock deliveries are expected to decrease modestly in 2012 since customer requirements are expected to be lower as a result of the continued weakness in the Southern Florida housing and construction markets. Royalty and other income in 2012 is expected to be moderately higher than 2011. The new unconsolidated mines, which are in development and which will not be in full production for several years, are continuing to generate modest income in 2012. North American Coal also has new project opportunities for which it expects to incur additional expenses over the course of 2012. In particular, the company continues to move forward to obtain a permit for its Otter Creek reserve in North Dakota and preparation for the expected construction of a new mine. The permit is expected to be issued in the first half of 2012. Overall, North American Coal expects full year 2012 net income to increase compared with 2011 mainly as a result of expected improvements in tons delivered at the Mississippi Lignite Mining Company. Selling, general and administrative expenses as a result of increased employee-related costs and development activities are expected to partially offset the improvements in net income. Cash flow before financing activities in 2012 is expected to be higher than 2011. Over the long term, North American Coal expects to continue to develop new mining projects both domestically and internationally. That concludes my remarks, and I would be happy to take questions if there are any.

[Operator Instructions] The first question comes from the line Schon Williams, BB&T Capital Markets.

I wonder if we could just start off with material handling. I had an opportunity to view the new UTILEV fork lift down at the MODEX show in Atlanta a couple of weeks ago. I think I understand the product positioning. But I wondered if you could maybe talk – maybe give a little bit more color about how you anticipate that rollout happening. What geographies are going to be getting it, during what time period, what market do you see possibly being the primary market? Is this really positioned to be a North American unit? Or are you going to use it – I mean, it sounds like you're using it on a global basis. But I'm trying to figure out, does this become a little needle mover for any specific geography. And then lastly, could you just talk a little bit about how the distribution of the UTILEV product has evolved? I mean do you have dealers already set up to take that product in 2012? Are you still working through those issues, maybe just some updates there?

Well, the UTILEV will be distributed through our regular dealer channels. We will not be distributing it through a separate distribution network. It is designed to ensure that our dealers have a full range of product to meet differing customer needs. The UTILEV is designed to meet the needs of the utility market. We have a standard truck especially focused in 5,000 and 6,000 pound internal combustion engine market. That's very similar to the sort of truck that Toyota has. We think it has some outstanding characteristics. And then we have our traditional premium products. So 3 products are meant to give our dealers the ability to meet differing customer needs with appropriate products. And the use of those trucks can range from customers who buy large numbers of trucks who may have within that group needs for different capabilities. So they could buy a premium and a standard and conceivably a utility truck. The utility truck is likely to have particular applicability in lower-intensity applications. And those are particularly frequent in the less developed markets around the world. They certainly are applicable as well in Western Europe, North America and other more highly developed parts of the world. But that truck is really essential to serve effectively certain Asian markets and certain developing markets, for example, in Latin America and Eastern Europe. So we expect to roll that truck out over the next year or so to all major markets. And to some degree, the timing of those is dependent on meeting different standards that are required for operation, for example, in E.U. or in United States. Different engines are required, different certifications, and all of that process is underway. Our objective is to have these trucks generally available in due course. But we would expect them to have differing impacts in different countries. Let me emphasize the importance in the developed countries of the standard of product which we introduced last year in – or 2010 I believe in the United States and in 2011 in Europe. That is an extremely important product to give us the ability to meet applications that simply don't require all of the premium features that we have in our premium product line. So our hope is twofold: one, that these will allow us over time to increase our share position in the internal combustion area; and two, to improve our overall margins, because we will be less inclined to sell premium, more costly products into applications where those costs do not need to be incurred. So we see this as both opportunity to gain share and margin.

And then I wonder if you could just talk about pricing. I mean you talk about certainly keeping an eye on commodity cost. Was there new pricing that went through at the end of the year or anything that's gone through in the beginning of this year? Have you done any kind of across the board increases that I should be aware of?

We have had increases at the beginning of this year, and they'll come into effect, not quite sure of the timing, February or March, late February, March sometime. But we advised of those earlier on in January, I believe.

Okay. And then what about, in relationship to the Tier 4 implementation, I mean is there additional pricing that will come along with those trucks, or are you having to you essentially eat some of the upgraded features that come along with that type of truck? I'm just wondering if the Tier 4 equipment creates a 5% increase to a truck, are you able to pass that through to the customer, or is that something that you're seeing some resistance in terms of customers accepting that higher price point?

Well, I think the way to think about it is every competitor has to introduce those at essentially the same time in the markets that require it. And so I think it's very realistic to assume that, that simply is what everyone faces and everybody will be increasing their costs. This is a very expensive program, especially in certain trucks. And I think everybody expects costs to go up as a result of that. Perhaps the more likely effect is to cause customers to rethink the trucks that they use to accomplish certain applications. There could be situations where they move away from certain kinds of internal combustion engines, adopt electric trucks, do other things that mean that they don't have to buy as many of those trucks that have certain kinds of Tier 4 engines in them. I don't think that's true of the broad range, but it may be true selectively. So you may see some shifting in mix as a result.

Okay. I mean do you think that puts you at a disadvantage given your historical presence on the ICE side of the fork lift industry?

No, we have an absolutely outstanding relatively new electric product line, 4-wheel electric product line. We think it's really essentially an industry-leading product line. And we feel we're in very good position to gain business that may shift from internal combustion engine to electrics. We have a very, very strong position in 4-wheel electrics.

Okay. That's helpful Just kind of moving on to housewares here, it looks like there were a number of product recalls within the Hamilton Beach unit in Q3, and then I think that continued into Q4. Was there any material impact to earnings as a result of that recall and do you feel satisfied that you've kind of resolved any engineering problems or technical issues with some of that product?

The answer to that is absolutely, those problems are resolved. And secondly no, there was no material impact on us. And our suppliers of those products are committed to deal with costs that are of that type. So it's very important, because they have the primary control over the quality of those. We have a substantial operation in China, which assists and helps to oversee and ensure the highest quality products coming from all of our suppliers. But part of the discipline here is how that's handled contractually. So these were smaller events. They were not major product lines or major volumes. And I think they've been handled expeditiously and appropriately, and they didn't have a big impact.

Okay, perfect. And then it looks like Kitchen Collection, there was a sizable increase. I'm actually referring to all of Kitchen Collection, both KC and Le Gourmet Chef. There was a sizable increase in the number of stores in the fourth quarter. I think together we're talking about somewhere around a 10% increase on a year-over-year basis. Seasonally, there are some – I guess there are some temporary stores that opened up in Q4, so take…

We've really discontinued the notion of seasonal stores. The fact is many of those seasonal stores were kept open, some were not. And so I think this is a more clean way to present it and that's really the way I would look at it. These are the number of stores that we're operating at 12/31, and they're pretty comparable. What we're doing at the moment is net increasing the number of stores in Kitchen Collection, not at a really rapid rate. But as we look forward, it was pretty rapidly rate. Last year, a lot of stores were opened. And in Gourmet Chef, we had a number of stores in malls where the rents were simply at levels that don't permit us to make – either don't permit us to make any money and have losses or where the profits are not satisfactory. That's why it's so critical, as I was suggesting in my comments, that in 2012 we're determined whether the new format and presentation of our merchandise in Gourmet Chef can enhance the volumes to a level that can make them attractive, assuming that we have the stores in the right malls with the right rental prices. And I would think we're going to have lot more visibility of that by the end of 2012 than we do right at the moment.

And then just in terms of the absolute number of stores maybe on the KC side, I mean could we see another 5% or 10% increase in the store count or do you think that the Q4 level just kind of carries through into 2012?

Well, you've raised an important point. We will have a modest increase in stores in 2012. But more importantly, as I suggested earlier, we have a new format that is going into place. And this requires some modification in the presentation of the merchandise in those stores, and it is a process that consumes a great deal of management time in order for it to be done correctly. And the management really concluded that as far as 2012 is concerned, it was more important to gain the benefits of having the new format implemented properly at as many stores as possible over the course of 2012 in a way that would not be disruptive to the selling efforts in our stores, and that means particularly at the end of the year. So you can expect that this is a year that has a lot more retrofitting, and a lot less -- a lot fewer new stores. But we think that the increase in same-store sales that comes from this set of changes more than justifies the switch-in emphasis for the year 2012.

Okay. And then turning our attention maybe to coal, I wonder if you could maybe call out some of the specific projects that maybe you're most excited about here in the near term. I mean in my mind, Liberty would probably be the biggest fish that's a little bit down the road. But I mean, I'm just thinking of some of these smaller projects like Demery, Camino Real, Caddo Creek. Could some of those starts actually ramp up in 2012, and obviously not be at full run rates, but could we actually start to see some modest volumes out of those smaller projects?

I think you're going to see pretty modest increases from those in 2012. The most important factors in this year will be the Liberty project which we expect to move forward into a new phase over the course of 2012. And a lot of effort is going into putting that mine in place and making sure that we're ready for production. We do have important activities underway in North Dakota. We do, I think, call those out as part of the new projects that we're continuing to work on, obtaining a permit for the Otter Creek reserve. We have some other discussions going on in North Dakota. So there are a couple of things in North Dakota that could be very important for the company in terms of its longer-term results. But none of those would have a big impact in 2012. Frankly, the biggest impact in 2012 will come from our customers and particularly the Red Hills Power Plant operating at a much higher level of capacity than has been the case until just recently. So we are hopeful that some real improvements have been made which will lead to much better results in the Red Hills operation. There is a great deal of leverage if we get additional volume. And the power plant runs at high rates. And so that's what we're really focused on. All of the others in effect are more long term, but we're spending a great deal of time focused on the longer term, because it's a difficult environment in the U.S. given some of the environmental pressures that are at least being generated with this administration in Washington. And so we're looking at other ways to participate in the business internationally, export, other markets, it can be good for the company and its shareholders. So there's a great deal of effort going into our long-term strategic thinking this year and then the hope that operationally the volumes will be better where we need them.

And just help me, I mean why do you feel so comfortable that Red Hills will make some operational improvements? I mean has there been any change in management there or any change in process or change in machinery that would mean that…

There's a relatively, a very new team of people working at the Red Hills power plant. We've established an extremely effective relationship with them, the cooperation levels in trying to get the best results for both of us I think are very encouraging. A great deal of it relates to the nature of the way maintenance activities are carried out. And we think that what they're doing now has already had a big impact in December and January as a result of programs that they had put in place late in the year and particularly during the last period of planned scheduled maintenance. So we're hopeful that the kinds of things literally have already been done, there are more, but I think we've already really moved the needle forward on that.

Okay. And then last question for me. The priority uses of cash, I mean cash continues to build on the balance sheet here, maybe just talk about where you see the priority uses of cash kind of going forward and then maybe talk or maybe address the buyback, it looks like you did a little bit of activity in Q4 but maybe how you feel about more of that going forward?

Well, we have been going through a period where you have to look at the cash situation quite carefully because we have been using some of the free cash flow that has been generated to reduce the debt in our businesses. So typically, we only have seasonal debt at Kitchen Collection. At Hamilton Beach, you saw that we paid down $60 million of debt. We will anticipate we will be continuing the program of increasing -- decreasing debt at Hamilton Beach, particularly in the shorter term. And then establishing a more permanent level of debt for that business and we expect that process to be complete this year. So then as it generates needed cash, that should be available for corporate NACCO uses unless Hamilton Beach comes up with thoughtful ways to apply it to its business which, at least at this point, we don't see the same is true at Kitchen Collection. At NACCO Materials Handling Group, there's a great deal of cash on the books at the end of the quarters. And we have a pattern of higher use of cash during the month and therefore it's not really all cash that's available. In addition, some of it is in Europe where it's less needed and then finally we still have a large amount of term loan B outstanding. I would expect over time, over the course of this year that we will address what the level of that kind of longer-term financing ought to be. And I would think that we will think through appropriate cash balances for Europe and have cash balances at month end that are much lower than they currently are. And as a result, I think we will have lower overall debt by a considerable amount at NACCO Materials Handling Group. So some of that cash that you're still seeing at the end of the year in the subsidiaries, it will be used for debt repayment and there should be more clarity as to just where that all settles out as we go through the course of 2012. And with regard to the corporate level of cash, we are pursuing a share buyback, as you pointed out. You may remember that when we announced that, the price of the stock was considerably lower than it is today. That of course is what leads to our having not accomplished as much in terms of purchases as we had hoped that we might in the fourth quarter. But still we have a program out there and we're hopeful that we'll be in a position to acquire more shares as we look forward. So that's really the plan that's on the table right at the moment and that's the whole structure of our focus on cash and what we're thinking about right now.

The next question comes from the line of Bruce Geller, DGHM.

I just wanted to see if you can give a little bit more color on the outlook for the material handling business. It was noted in the press release and your comments that net income is expected to decline materially. Can you give a little more color around the word material? It seems like a strong statement and I'm a little confused as to why you did point out some one-time items which actually seems to be the first mention of some of these one-time items, I've heard this year like the elimination of certain post-retirement benefits. So maybe you could just elaborate on what some of those one-time items were in 2012 and what you are thinking in terms of the materiality of the potential decline in the coming year?

Well, one of the one-time items was the elimination of certain post-retirement benefits that resulted in a gain that benefited 2011. I think a larger impact was in the currency area. And I think it's important to note that we do expect higher marketing and employee-related costs as we look forward. We're in a position where we feel that we have the products and the position with our distribution to provide more support capabilities to our dealers in anticipation of helping them gain additional market share. Those kinds of programs are very much focused around sales and marketing programs and support activities in terms of sales coverage, building of our national account capability, other actions of that nature. And I think the other thing is that we don't see particularly robust markets in 2012. We see the European business coming under considerable market pressures, it's very difficult to forecast exactly how significant they'll be. But as you can imagine in areas like Portugal, Spain and Italy, they are a higher impact than they are in Germany. Our share is lower in Germany and higher in those other countries I mentioned. So there are some problematic aspects in those countries. And there are just a variety of things that come together to make things little bit tougher in 2012 than in 2011. That's pretty much where I'd leave it.

So how does this all coincide with your often-stated goal of the 7% operating margin for that business, in what sounds like was a pretty good year in 2011 and you're now anticipating a down year. In 2012, your operating margin only peaked at 4.3%, quite a bit below your goal. So how do the comments you just made coincide with that goal of 7% margin?

Well, there are a couple things to keep in mind. It really ties in very closely. First of all, in order to achieve the target margins that we have, we need to have enhanced share. Our factories are not operating at the capacity level that we would like them to be operating at this point in the cycle. I would also say at this point, the cycle is somewhat weaker for 2012 than we had anticipated that it might be. And that's true in both Europe and Americas. So both of those factors mean that attaining our objectives is more difficult. Finally, there are some margin issues, particularly in the internal combustion engine product line. And I've indicated that earlier in response to the questions then, that with the utility standard in premium product line, or with the addition to the premium product line of standard and utility products that we believe we can get both enhanced share and better margins on average. And so we feel that the pieces are still there, but we have a number of things we have to execute in order to get to the objectives we have. Getting to them is not easy. The returns on capital in all of these businesses with the exception of Kitchen Collection are really very high. Very attractive returns on total capital employed. And so I think we have those objectives very much in mind. In each of our businesses we feel over time that we can achieve them. We have them embedded in our compensation programs to some degree, the appropriate degree in each of the businesses, and those goals are out there for people to move toward. But I think you certainly should feel that with a -- the businesses that we have structured the way they are, that achieving those goals, is achieving pretty – a very substantial – it would be a very substantial achievement. But we're committed to doing it. But the markets aren't cooperating quite as much as we thought they would. And frankly, some of the programs just take a while to get to have impact, especially when you are trying to take market share. And we have a number of very good effective competitors, who would prefer not to see that happen.

So you mentioned capacity utilization is one of the challenges. And with the market leveling out here, it would seem it's going to be difficult to achieve a much higher level of utilization without order rates turning back up. So…

That's why the market share program is here in place. That's the whole point. We have to get the market share in order to get the capacity utilization up. That's the point I was trying to make.

Sure. But to get that market share that's going to pressure the margins, obviously.

Not necessarily. Because I think to be honest, we will focus a great deal on parts of the market that our sales force is not actively aware of. And we think we have product line such that, if we actually call on accounts where we're not doing business and present our story effectively, we believe that we can close a substantial portion of those. So I don't view it as necessarily a price issue. I view it, it does have attendant cost, particularly for sales coverage and to some degree those will need to be shared with our distribution. But it's not necessarily just a price question.

Well, my question was more on margin, not necessarily price. But you're obviously spending a lot more money to try to gain that share. And your comments that it's not necessarily going to affect margin, doesn't coincide with your commentary in the press release. So that's – I'm just trying to tie…

Now, let me clarify between operating profit margins and margins at the gross profit level. And with regard to the gross profit level and those margins being under some form of pressure, I think I mentioned that there's some adverse country mix and that there are increased sales in some markets, where margins are lower. That's a different issue.

Yes, I hear you. As a shareholder, ultimately I care about the operating – the level of operating income. I think to me it's more important than a market share number or a gross profit number.

Believe me, nobody cares more about the operating profit number than I do, but I do take a long view and so does everybody in our company. We don't do things unwisely I hope, and we do them thoughtfully. We have disciplined programs, but we are prepared to invest where we think that's appropriate. And I would also say that we're not overly controlled in that process by the way that GAAP accounting treats certain kinds of expenditures which are, as a practical matter investments in the future that you have to make if you want to move things forward as opposed to things that are capitalized on the balance sheet. So we try to do it in a very disciplined fashion. I think you should feel that the profitability in terms of the returns on the invested capital, total capital involved, much less on the levered basis are very, very attractive even at the current operating profit levels at NACCO Materials Handling Group. So we do see though that over the next couple years, to put a more positive perspective on this, we do think that the markets are going to go up, that volumes will go up, that our share will go up, and all those things will come together in a way that'll move us both to a higher capacity utilization in our plants and to higher profitability.

So I'm sorry to keep pressing you on this, but how much was the gain from the elimination of certain post-retirement benefits?

I'm not going to get into more details. There will be some -- whatever level of information is in the 10-K will be available to you, and we really have not gone into more detail in the kinds of disclosures that we provide than what I just communicated to you.

Al, I'd just point out that our third quarter Q and third quarter earnings release was the quarter that we did call this out and I'd prefer the question being raised by the gentleman to go back to those filings.

Isn't it important though to have shareholders understand what the aggregate nature of the one-time items are, because you call them out in the press release as being a factor year-over-year looking forward. But then you're not telling us how much of a factor they are. I'm just asking for some assistance.

And we don't give earnings forecasts either.

I wasn't asking for an earnings forecast, but I'm just trying to gain an understanding of the underlying profitability of the business in 2011 versus what the one-time items added in 2011, so I could try to make my own forecast for 2012 based on the underlying operating profitability of the business in 2011.

My suggestion would be that you follow up and we will work with you to identify the material that's in the 10-K and in the previous 10-Qs. And I think you'll find that you have enough information if you do the analysis to figure out at least a reasonable portion of what you're talking about.

Okay. My last question revolves around some of the prior commentary about excess cash and paying down debt and share repurchase. One item that wasn't discussed was the dividend, and I'm curious what your thinking is there, where the dividend is on your priority list and how you're thinking about that for the coming year?

Well, we generally have discussions with our Board about that issue over the course of the second quarter. Historically, really for a very long time, our policy has been to increase the dividend at a modest rate each year. But when we get to discussion of that with our Board, we always consider alternatives, but it's been a pretty good policy for us over the years.

[Operator Instructions] There are no questions at this time. I'd like to turn the call back to Christina Kmetko for further remarks.

Al, did you have anything you wanted to follow up with?

No. I think that pretty much summarizes it. I think as we said in answer of the last question, there are some downsides at least as it appears at this point in the year on balance at NACCO Materials Handling Group, and that comes off the back of a year that was considerably better than we anticipated that it would be. And I think we've suggested that there are some improvements, albeit more modest in the other 3 businesses. And so we've got some pluses and some minuses overall. That's all I have.

Thank you all for joining us today. We appreciate your interest. If you do have any additional questions, you may give me a call. My phone number is (440)449-9669. I'll turn it back to the operator.

The company would like to remind you there will be an audio replay of this event available later today. To access the replay, please dial U.S. toll free (888)286-8010 or international (617) 801-6888 and enter the replay code 61815127. And thank you again. This does conclude today's conference. You may now disconnect and have a great day.