NACCO Industries Inc (NC) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen. I would like to welcome you to your First Quarter 2007 NACCO Industries Earnings Conference Call. My name is Alexis, and I will be your audio coordinator for today.

[OPERATOR INSTRUCTIONS]

As a reminder ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Miss Christina Kmetko, Manager of Finance at NACCO Industries. Please proceed.

Thank you. Good morning everyone, and thank you for joining us today. Yesterday, a press release was distributed outlining NACCO's results for the first quarter ended March 31, 2007. If anyone has not received a copy of this earnings release or would like a copy of the 10-Q, please call me at 440-449-9669, and I will be happy to send you this information. You may also obtain copies of these items on our website at www.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 is Ken Schilling, Vice President and Controller. Al will provide an overview of the quarter, 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 were set forth in yesterday's press release and in our 10-Q.

In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2007 first quarter earnings release, which is available on our website.

I will now turn the call over to Al Rankin. Al?

Good morning to all of you. I'll begin with an overview of the earnings release, which was sent out last evening. This complements the 10-Q, which was also released last night and is available on the NACCO website. Our first quarter net income was $6.6 million or $0.80 per share compared with net income of $12.7 million or $1.54 per share for the first quarter of 2006.

The decrease of $6.1 million in first quarter 2007 net income in comparison to the first quarter of 2006 results from the following, first, the absence of a $3.7 million before and after-tax gain on the sale of a lift truck retail dealership, which was recognized a year ago. Second, a $2.5 million or $1.6 million after-tax restructuring charge at NACCO Materials Handling Group Wholesale. Third, incremental seasonal losses of $2.3 million after tax resulting from the Kitchen Collection acquisition of Le Gourmet Chef stores in August of 2006. Fourth, the costs of $800,000 after tax associated with the terminated Applica transaction and the Applica -- ongoing Applica litigation, which is in the NACCO and Other line item. And finally, improved operating results at all of our subsidiaries in the parent company and other activities of approximately $2.3 million after tax.

Revenues of $804 million compared with revenues of $770 million in the first quarter of 2006, and all the businesses recorded revenue increases with the exception of Retail -- NACCO Materials Handling Group Retail, which sold two dealerships a year ago.

Turning to the highlights of the individual subsidiaries, NACCO Materials Handling Group Wholesale's net income was $9 million compared with $10 million in 2006. And the $9 million includes the $1.6 million after-tax restructuring charge that I mentioned earlier.

Retail's net loss was $3.7 million, which compared with net income of $1.4 million, and the big difference between the two is the $3.7 million after-tax gain on the sale of a retail dealership in 2006 that I mentioned earlier.

Hamilton Beach/Proctor-Silex's net loss was $100,000, which is essentially the same as the 2006 net loss of $200,000.

Kitchen Collection's net loss of $3.1 million increased compared with the 2006 net loss of $900,000, and that was essentially all attributable to the $2.3 million after-tax cost of the seasonal impact of Kitchen Collection's acquisition of the Le Gourmet Chef stores, which were acquired in August of last year.

North America Coal's net income increased to $6.8 million compared with $3.7 million in 2006, primarily because of an amendment to the contract at San Miguel Lignite Mining Operations and lower selling, general and administrative expenses.

And NACCO and Other's net loss of $2.2 million increased from a loss of $1.2 million, largely due to the $800,000 after-tax charge related to Applica-related expenses.

Very importantly, as we announced on April 26th, NACCO's Board of Directors has approved a plan to spin off NACCO's Hamilton Beach/Proctor-Silex business to NACCO shareholders. That company will be known as Hamilton Beach, Inc.

And as a result of the spin-off, NACCO shareholders in addition to retaining their shares of NACCO common stock, will receive one-half of one share of Hamilton Beach, Inc. Class A common stock and one-half of one share of Hamilton Beach, Inc. Class B common stock for each share of NACCO common stock owned.

And we have provided some supplemental information at the end of this release, which gives a perspective, some further information on NACCO's profile after the spin-off of Hamilton Beach.

We turn to the outlook for NACCO overall. We think that the combination of favorable market forces and the results of our improvement programs should lead to 2007 net income in the general range of 2006 results excluding, of course, the 2006 extraordinary gain from the reduction in the company's closed mine obligations and also excluding any further potential charges associated with additional restructuring programs being considered at NACCO Materials Handling Group Wholesale and Retail.

If you look at it from a subsidiary by subsidiary point of view, NACCO Materials Handling Group Wholesale's results are expected to improve over 2006 due to the absence of a debt redemption charge of $10.7 million after tax resulting -- that was done in 2006 and has resulted in lower interest expenses.

However, we will have an absence of favorable product liability adjustments that were recognized in 2006 in all likelihood, and that will mitigate these improvements. And as I indicated, plans for future restructuring are being considered now.

NACCO Material Handling Group Retail's results are expected to improve significantly due to plans being considered now to restructure the Australian operations, which if we implement them, could result in some charges in the second quarter of 2007 as well.

Hamilton Beach/Proctor-Silex is expected to have stronger net income as a result of increased volumes and an improved mix of products as well as the absence of an environmental charge taken in 2006.

Kitchen Collection's operations are expected to improve continually in 2007 as the Le Gourmet Chef operations are integrated. However, achieving a net income level in 2007 similar to 2006 will be quite challenging, because Kitchen Collection, in 2007, will recognize eight months of seasonal operating losses of Le Gourmet Chef that are not -- were not incurred by Kitchen Collection prior to the acquisition of Le Gourmet Chef in August of last year. There will also be integration costs and the extra interest resulting from the additional debt that was incurred from Le Gourmet Chef.

North American Coal's 2007 operating results are expected to increase moderately over 2006 if you exclude the benefit of the unusual drag line sales in 2006 of $13.1 million after tax. And NACCO and Other results are expected to increase in -- be -- to improve in 2007 because of lower employee-related expenses and the absence of Applica transaction fees.

Overall, we anticipate improved, stable operating results at all subsidiaries in 2007. But with many of these improvements occurring in the second half of the year due to the seasonal nature of the housewares business, higher expenditures in the first half of the year as a result of specific programs at NMHG and at Hamilton Beach and the increasing integration of Le Gourmet Chef into Kitchen Collection.

Those are the highlights of NACCO's overall first quarter results and outlook as well as those of our four subsidiary companies. I'll now add a few supporting perspectives from each subsidiary unit.

At NACCO Materials Handling Group Wholesale, I particularly note that first quarter 2007 shipments decreased very slightly, a couple of hundred units, to 21,500 units in the first quarter of 2007 compared to the first quarter of 2006. NMHG's Wholesale's worldwide backlog increased, however, to approximately 30,000 units at March 31 compared to 23,600 a year ago and 27,200 at December 31.

I've already indicated that the decrease in net income in the first quarter was primarily attributable to the increase in restructuring charges. There were other factors at work, however, an increase in selling, general, administrative expenses and some unfavorable foreign currency movements, and those were offset -- partially offset by higher gross profit and a significant decrease in interest expense.

As far as NMHG Wholesale's outlook is concerned, as you know, NMHG manufactures trucks and sources components for sale in the U.S. market from countries with appreciated currencies. And foreign currency movements have adversely affected in a very significant way over the last few years NMHG's earnings as the U.S. dollar has continued to weaken against other currencies.

During the first quarter, as we've indicated, Wholesale outsourced its welding and painting operations at its Netherlands manufacturing facility. That action is expected to provide benefits of $1.2 million in '07 and $1.6 million annually thereafter, so a very good payback from the actions we're taking.

And we're continuing to evaluate other actions, which are consistent with our long-term stated strategy of -- to manufacture products in the market of sale, which has the added benefit of minimizing currency exposures.

We're looking at analyzing several alternatives including the possibility of changing sourcing and assembly locations to lessen NMHG's exposure to future currency exchange rate fluctuations. Decisions will not be made or announced until our usual thorough analyses as well as discussions with all the parties involved are completed, although decisions are expected as early as the second quarter of 2007.

I think as is indicated by the action NMHG Wholesale has taken in The Netherlands, the company is committed to addressing the critical issue of unfavorable currency exchange rates as well as meeting the challenges of further reducing manufacturing component and other product costs on building market share.

Overall, we do -- are optimistic that NMHG Wholesale results will improve over 2006, primarily as I've indicated as a result of the absence of the debt redemption charge of $10.7 million after tax.

I think from a longer-term point of view, NMHG Wholesale's investment and long-term programs, particularly its significant new electric rider truck, warehouse truck and big truck product development and manufacturing programs are expected to continue to improve things and results in 2007 and 2008. And the company continues to anticipate that the programs in place or under consideration will allow us to achieve the 9% operating profit goal -- in the 2010 or 2011 timeframe.

At our Retail -- NACCO Materials Handling Group Retail business results, recent results last year and in this quarter have not been satisfactory. And as we've indicated, new programs to improve long-term financial performance were implemented in the Australian operations where the financial issues exist early in the second quarter of 2007.

Further actions are being considered, and decisions are certainly planned for, for the second quarter. And we expect those decisions when they're made to reduce expenses, improve operational effectiveness and enhance customer service in our various markets in Australia. That we are hopeful would lead to significantly improved results in the second half of 2007 as a consequence of those actions, although some restructuring charges may also be required.

Overall, these programs are expected to have an increasingly favorable affect in 2007 and 2008 and are being put in place to meeting NMHG Retail's longer-term strategic objectives, which include achieving at least break-even results while building market position.

At Hamilton Beach/Proctor-Silex, I'd really note that over time, continued product innovations, promotions and branding programs are expected to strengthen its market positions. And as a result of that ongoing focus on innovation, Hamilton Beach/Proctor-Silex has a strong assortment of new products planned for introduction in 2007, including the new innovative Quick Dry Garment Drying Station.

These new products, along with products introduced in 2005 and 2006 are expected to generate additional product placements at retailers and result in increased revenues and operating profits in 2007.

Hamilton Beach/Proctor-Silex implemented manufacturing restructuring programs in prior years that are designed to reduce operating costs and move the manufacturing of products to third-party manufacturers.

These restructuring programs as well as expected increases in volumes and other programs initiated by Hamilton Beach are expected to have a favorable impact on results in 2007 and future years.

The Mexico manufacturing operation, which is Hamilton Beach's only remaining manufacturing operation, is expected to close in the second quarter. And after the second quarter, blenders and coffee makers for the Mexico and Latin American markets will be produced solely by third-party manufacturers.

We do expect some additional pretax charges associated with these final actions of something like $900,000, and that'll complete the overall manufacturing-restructuring program. And longer term, Hamilton Beach will work to continuously improve revenues and profitability by focusing on innovative products and on cost reduction and margin-enhancement programs.

At Kitchen Collection, I would note that in addition to the seasonal losses from adding Le Gourmet Chef to the Kitchen Collection business that the operating results at the core Kitchen Collection stores did improve modestly in 2007 compared with 2006.

Clearly, Kitchen Collection anticipates an increase in revenues in 2007 as a result of a full year of operation of the Le Gourmet Chef business. Kitchen Collection assumed 69 of the 77 Le Gourmet Chef store leases as a part of the acquisition. Five stores were closed during the first quarter of 2007, and three stores are expected to be closed during the second quarter. And Kitchen Collection anticipates that operating results for the business, the Le Gourmet Chef business, will improve as the under-performing stores are closed.

As I've indicated, Kitchen Collection expects the operating results in the first half of 2007 will be reduced by the seasonal losses from ownership of the Le Gourmet Chef stores. The integration of Le Gourmet Chef is essentially on schedule. It's expected to be completed by the end of 2007 with the exception of the distribution function, which is likely to be completed in late 2008.

As a result, Kitchen Collection expects increasingly improved results in the second half of 2007 with the majority of the synergy benefits, excluding distribution synergies, expected to be achieved by mid 2008. However, achieving a net level -- net income level in 2007 for KCI overall, which is similar to 2007 will be challenging because of the eight months of seasonal operating losses at Le Gourmet Chef that have been picked up in 2007.

North American Coal expects an improvement in its operating results in 2007, excluding the benefit of a -- of the gain on the sale of a drag line in 2006 of $13.1 million after tax. And overall, I think North American Coal expects strong performance from its current operations over the next few years.

But very importantly, over the longer term, North American Coal expects to continue its efforts to develop new domestic coal projects and is really very encouraged that more new project opportunities may become available. They range considerably in the type of opportunity and include opportunities for coal to liquids conversion, coal gasification and other clean-coal technologies. As a result, we do expect expenditures for the development of additional, uncommitted coal reserves to be higher in 2007 than in 2006.

At NACCO and Other, as I previously indicated, we do expect that the general and administrative costs will improve, and we'll have -- we do expect to have additional cash expenses in 2007 associated with the Hamilton Beach -- the spin-off of Hamilton Beach, Inc., which is expected to be reflected as discontinued operations after the spin off is completed.

In conclusion then, I have a few thoughts, which amplify and put in further perspective, my comments on the company's overall prospects and outlook. First, Hamilton Beach, Kitchen Collection and the coal company are all operating quite close to their target minimum returns, and programs are in place to close the remaining gap over the next two years or so.

More fundamentally, income growth for those businesses will now need to come largely from business growth. Hamilton Beach is focused on innovative new products and on placement activities with a very professional team.

Kitchen Collection is now focused on capturing the full potential of the LGC format through growth in the number of stores in both outlet malls and traditional, largely enclosed malls.

And North American Coal is actively pursuing new opportunities related to traditional coal-fired plants, gasification for power plants, coal-to-liquids energy ventures and lignite beneficiation projects. And North American Coal is optimistic that, as I've indicated, that some of these new project negotiations can be concluded in 2007 and that the environment for others in later years is a good one.

Second, NACCO Materials Handling Group remains the biggest source of potential profit improvement opportunity for the company. Wholesale operating results in 2006 and in the first quarter are well below the company's long-term objective of 9% operating profit margin, and retail net losses are significant and well below our near-term objective of break-even.

Well clearly, external factors have arisen, particularly significant currency-driven cost increases and material cost increases. We view these as simply factors, which cause a delay in achieving our objectives by two years or so to 2010 and 11. We indicated that in our -- that that was the timeframe we were focused on in our annual report and in our full-year 2006 fourth quarter and full year results.

We believe that the programs are, or will shortly be, in place to move us forward toward our objectives increasingly over the next few years in 2007 through 2011. Particularly in the context of the new efficiency and consolidation program that's underway at NACCO Materials Handling Group's Australian Retail operations and of the manufacturing and sourcing change programs, which are now being analyzed with the objective of lowering costs, reducing euro and pound currency exposure.

Third, the company continues to be optimistic that it will be a substantial generator of cash flow before financing and before fundamentally new undertakings as it was in 2006. And we're also hopeful at the same time that that cash flow can be put to work in sound new project opportunities, particularly at North American Coal.

In general then, as I said at the very beginning, we believe our companies can operate in the general range of the enhanced profitability level in 2006, excluding the extraordinary gain that we had in 2006 and then move gradually toward a further new plateau in 2010 and 2011.

I would be remiss, however, if I didn't note that markets and competitive conditions are always uncertain. And while we don't currently expect it, world lift truck markets could go into a significant downturn. Currencies could worsen before our new sourcing patterns can be put in place, and customers can change their sourcing patterns. And if changes in the environment do occur, then we would have to react constructively, as we've done at NACCO Materials Handling Group this year.

Fortunately, at each of our businesses, we will be addressing our programs and any further issues from a position of strength. Each of our companies is a real leader in its industry, and each has, we believe, a very strong management team.

Now with that, I'd now like to turn to any questions that you may have.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Frank Magdlen with Robins Group. Please proceed.

Good morning, Al.

Good morning.

Hey, in the Material Handling side, the backlog I think was a nice increase. Can you give us a little more detail as to where the increases occurred? Or, was it a certain type of truck or a certain geography?

I think we had just good booking levels in the first quarter. They were quite encouraging, and it was in the United States, in Europe. And to be honest, I can't tell you whether the backlog increased in Asia-Pacific or not as a part of that number. But generally, we were encouraged by those numbers and hope that we can continue to see good bookings as the year progresses.

All right. And then with outsourcing in The Netherlands, is this something that's going to be more of a trend going forward as you -- and I'm assuming maybe you have a union issue as well over there?

Well, the way I would put it is that we are continually analyzing opportunities to reduce costs. And in The Netherlands facility in particular, the opportunity has really worked out very effectively for us to take certain activities that we had previously been doing in The Netherlands plant, which I would call a plant in a mature European country and put those activities in areas of much lower cost.

A good portion of the outsourcing that has taken place, not just in this quarter, but in previous quarters in The Netherlands has been into Eastern Europe. We have taken frames and painting and other -- the whole range of fabrications and moved those to low-cost locations and really focused The Netherlands plant on being the highly efficient assembly operation.

And I think to the extent that your question is broader than that particular plant, that is a pattern, which we've been pursuing in our other plants. And it's very much on our minds as we look at our options here and analyze exactly how to address reducing our costs and mitigating the impact of unfavorable currencies.

So, I think in that sense, it's not just that it's a trend for the future, but it has been a trend. We have taken certain activities into China. In past years, the past couple of years, we have increased our Mexican sourcing activities in recent years.

So, we are moving a number of activities into what I would call low-cost sourcing venues as a part of our overall project to deal both with the absolute level of costs and secondly, with the currency impact that we're struggling with, with the high level of the pound and euro, particularly, relative to the dollar.

All right. One other question in North American Coal, can you elaborate a little bit on what the price escalators adjustments are on the various contracts?

Well essentially, all of those escalators, in one way or another are designed to compensate the company for increases in the cost that it is incurring in mining the coal. Some of them, and particularly in our subsidiary companies, are straight pass-throughs where the costs, the increased costs, are passed directly on as a part of the entire structure of the agreement. And the escalation, which based on a basket of escalators that really affects only our profit calculation and to some degree, the incentive structures that are in those contracts.

In others, we bear the responsibility for the cost of mining and are protected against cost increases of various kinds through escalators. Those -- in principle, those are targeted to the specific types of purchases that those operations are making.

So for example, diesel fuel in certain of our operations is a very significant factor. And so, there are very specific escalators for diesel fuel. There are very specific escalators for tires for certain kinds of maintenance parts, for labor. Those are some of the types of details. They're pretty complex formulas.

Every once in a while, one of them gets out of whack with reality, and we have to go back to our customers and work with them to try to get the escalators to in some way be adjusted to reflect more accurately what they were supposed to reflect in the first place.

So, that's a constant process of communication and discussion and -- but, each of those contracts has a very comprehensive set of escalators that are not general economy based. They're quite specific, based on the cost structure of our operations.

All right, thank you very much.

Yes.

Your next question comes from the line of Roel Gooskens with Franklin. Please proceed.

Yes, good morning. Roel Gooskens with Franklin, hi. Just some clarification, if you look at the numbers on the Q1, you can see that the sales of NMHG Americas were down 11%.

That takes into account, I would assume, price increases, also the fact of course, you've been selling more and more of the new range of products, which you'd carry a higher price. Could you maybe elaborate on the volume developments in the U.S. and why it's so suddenly the Q1 decline? Were you aware of this, let's say, a few months that the Q1 will be a relatively weak quarter?

And secondly, related to the, is the other reverse of course is the Europe and Asia are up by some 40%. Is that all locally produced trucks, rails? Are you also exporting now from the U.S. to these countries.

No.

[Inaudible]

We don't export from the U.S. to those countries. And with regard to your comment about the first quarter, I really just note the backlog numbers as far as future is concerned. Those are very important. We can have fluctuations and the timing of orders in the business that are related to the substantial level of our national accounts business and the sort of timing of flows of the orders from a seasonal point of view.

But, I think I'd just stand by my overall comments with regard to the business as a whole and its prospects. So, we feel pretty comfortable about that. I'm trying to think as we talk. I'm -- am focused on it. But, I do believe it's also the case that in the first quarter of 2006, we were introducing some new products. And we had some substantial backlog and had probably more sales in the Americas than might have been the case on a normalized basis.

I'd have to go back and double check that comment, but I'm pretty sure that that's an accurate comment as far as last year's first quarter. Obviously, some of the increase in Europe is currency related and not an increase in the number of units. And you'll notice that the -- just we noted that the number of shipments in total was essentially flat across the year. Okay?

Two more, smaller, questions, may I ask? So, it's on the -- first, it's on the seasonal loss of Le Gourmet Chef where it looks a little bit -- it looks that Le Gourmet Chef is more seasonal than your own Kitchen Collection because you lose whatever, $3.5 million on EBIT in -- on $40.7 million of sales for Le Gourmet Chef in the year, in the first quarter, where the Kitchen Collection only has a seasonal loss, you could say, of $1.4 million on $23.5 million. That's the first question.

And second is also on NMHG Retail, where you're losing almost $4 million on EBIT in the first quarter. Could you clarify, is most of that in Australia? And secondly, if it's mostly Australia, why is that country losing so much and it is so consistent?

It is mostly Australia, and I'm very hopeful that the program that will -- we're trying to reach conclusion on will come together in the second quarter and will make radical difference in those numbers.

Secondly, with regard to Le Gourmet Chef, what I would say is, it's a little early for us to really know even ourselves precisely what the long-term seasonal numbers will be, because we have two types of transitional effects in addition to the traditional seasonal impact.

One, are -- the costs of integrating the business with our Kitchen Collection business, we did complete in the first quarter, the move of Kitchen Collection -- of the Le Gourmet Chef business from New Jersey and have integrated it into our operations in Chillicothe, Ohio. I think we have that portion behind us.

But, there are a number of other integration activities, which are either costing money or meaning that the business is still operating at a somewhat sub-optimal level. For example, as you can well imagine, when a company is going through a bankruptcy process or ends up going through a bankruptcy process, some of the things that it needed to do as an ongoing business were slighted to some degree.

And so, I think our buyers are going through a process now of refurbishing the product offering in a way that probably meant that we didn't have quite as many new and lively products in those stores as would be normal for those kinds of stores as they started -- finished 2006 and started 2007. And so, there are problems of that nature as well.

We think that we should be in -- at least, our latest estimate I think is, in very good condition by the fourth quarter in terms of upgraded product offerings and availability of product. We had availability issues that were of some impact in the first quarter that were related to some changes that had to be made in the distribution operations as a result of the -- some of the issues that arose during the Le Gourmet Chef bankruptcy proceedings.

But overall, these are just the normal problems. And you'll remember that we were able to buy the stores on a very favorable basis. And so, we're quite optimistic about the opportunity. What I do think is that the near term will be focused on completing the integration, getting everything operating the way we want it, making sure that we have absolutely the right people in the right positions.

We think we have completed that task. But we will be monitoring that to make sure that that's the case and that it may be that the growth opportunity that we think we have with Le Gourmet Chef for adding additional stores may be focused more in 2008 and less in 2007, because we want to make sure we get the integration done right first.

Thank you.

[OPERATOR INSTRUCTIONS]

Your next question is a follow-up from the line of Roel Gooskens with Franklin. Please proceed.

This may be the last question from my side. It's on the Hamilton Beach/Proctor-Silex spin-off. Aren't you afraid that the company will be a little bit too small to be a listed company? I don't discuss whether it can survive financially or standalone wherever there's good market position.

But, this assumes the company will get a market cap of $250 million and a free float of 50%. Is there going to be a very viable stock listing for a company like Hamilton Beach/Proctor-Silex going forward? Will there be analyst coverage and those things? What are your feelings on that one?

Well, we feel -- and with our advisors that there can be a good market in the Hamilton Beach, Inc. stock. We expect to take an appropriate set of actions to try to encourage market interest in the company, including communications with professionals -- with potential investors.

I think that we feel that the -- there's adequate float for shares to trade effectively. We do have every expectation that these shares will be listed on the New York Stock Exchange. And as far as the size of the business is concerned, it's quite a profitable $0.5 billion a year business.

We think that the opportunities for it to be out as a public company will enhance its growth prospects significantly and reinforce the entire incentive structure in terms of the management to gain the benefits of those growth opportunities. We were very disappointed that the Applica transaction did not come to pass for us. So, we think it did demonstrate the value of having equity as -- a currency in transactions.

But on the other hand, I would just note that there certainly is long-term shareholder holdings and -- that should give, I guess the way I should put it is, there is a stability in the ownership structure, which allows the company to pursue the right programs over the long term and really do things that will benefit the shareholders over the long term. And that's the way we hope that the business will be moving forward.

Any other questions?

[OPERATOR INSTRUCTIONS]

The next question is a follow-up from the line of Roel Gooskens with Franklin. Please proceed.

If there's nobody asking questions, still room there for maybe a last question is that looking at your balance sheet with the dividend from Hamilton Beach/Proctor-Silex, you're virtually ungeared for let's say towards the end of the year, early next year.

What are your plans with your, let's say, ungeared balance sheet? Because if you believe in your long-term plan, which I assume you do, even with some delays, we [could go] into the raw material.

But, if you believe that you're going to make the 9% EBIT margins and that also NACCO will do it. Certainly the coal will -- price will do it -- its margin and what's believed to do. Shouldn't you then start using your balance sheet to buy back stock really?

Well, we really have not, at this time, focused on the use of cash that we hope will be accumulating. We have substantial cash at the end of last year. And as I've indicated, we are optimistic that these businesses will be cash generators before fundamental new projects. And of course, the most likely area of opportunity for real investment is in our coal business at this time in all likelihood.

So, I think the first step will be to see how opportunities begin to mature in the coal business. And anything will be done in the context of trying to understand the opportunity to deploy capital wisely in a business that we know very, very well where there's a level of opportunity that certainly has not been out there for a good many years. There was very little expansion in the coal business growth opportunity in the 1990s.

Now, we see quite a bit, both because the economy has grown. And there are shortages of electric power in some of the markets that we participate in. So, in our base business, there are opportunities.

Secondly, there is the economics of new technologies, either gasification or coal to liquids are more and more intriguing in the context of some combination of high energy prices and environmental concerns and give us opportunities that we feel we have not seen recently.

And finally, we have opportunities in coal beneficiation, which could provide additional markets for lignite and also to serve other markets that may have coal derivatives that are important in terms of managing environmental issues that power plants face.

So, it's -- there are a number of different kinds of opportunities in the coal business, and we need to gauge, very thoughtfully, what those are and how we want to participate in them in order to get good returns for our shareholders.

Thank you.

Any other questions?

At this time, there are no further questions in queue.

Okay, thank you very much.

Thank you. We appreciate your interest, and if you do have any additional questions, please feel free to call me at 440-449-9669. Thank you.

Ladies and gentlemen, I would also like to mention that a replay of this conference will be made available within the following hour. It shall remain open for the following -- for the next eight days.

The dial-in numbers for the replay are as follows, 1-888-286-8010. Again, that number is 1-888-286-8010. International callers may dial 617-801-6888. Again, that is 617-801-6888. And please note that the access code for this replay is 62553015. Again, that is 26553015.

I'd now like to thank you all for your participation in today's conference. This now concludes the presentation. You may all disconnect.