NACCO Industries Inc (NC) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2009 NACCO Industries Earnings Conference Call. My name is Yvette, and I will be your operator for today.

(Operator Instructions)

I would now like to turn the call over to Ms. Christina Kmetko. 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 third quarter ended September 30, 2009.

If anyone has not received a copy of this earnings release or would like a copy of the 10-Q, please give me a call and I will 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 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 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-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 third quarter earnings release, which is available on our website.

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

Thanks, Christy. The earnings release indicated that we had a consolidated net loss at NACCO Industries, for the third quarter of 2009 of $3.9 million, or $0.47 a share, on revenues of $532 million, and that compares with a consolidated net loss for the third quarter of the previous year of $17.3 million, or $2.09, on revenues of $917 million.

It's important to note that the third quarter last year results were negatively affected by the recognition of a non-cash tax charge of $14.5 million against the accumulated deferred tax assets at NACCO Materials Handling Group's Australian operations and for certain US taxing -- state tax jurisdictions.

The -- NACCO's consolidated revenues for the third quarter were lower than the prior year, primarily as a result of significantly lower volumes in NACCO Materials Handling Group due to the major drop in the global forklift truck market demand.

Just some highlights first on the third quarter, NACCO Materials Handling Group's net loss was $22.4 million, compared with a net loss of $20.1 million in 2008. In early October NMHG announced a manufacturing restructuring program, and additional reduction-in-force programs that resulted in a restructuring charge of $6.9 million, both before and after tax.

Hamilton Beach's income increased to $6.9 million in 2009 from $1.3 million in 2008. Kitchen Collection's income increased from $300,000 in 2009 -- to $300,000 in 2009 from a net loss of $3.3 million in 2008. And North America Coal's net income increased to $11.4 million in 2009, compared with $7 million in 2008.

I'll turn now to the individual business units to discuss their results. And I'd noted in the beginning the discussion of the third quarter and NACCO Materials Handling Group that remaining retail operations after the sale of the Hyster retail dealerships have been -- the presentation has been changed and we eliminate the discussion of a separate retail operation, and we discuss only consolidated NACCO Materials Handling Group information. The retail operations at this point are immaterial in the context of the total NMHG business.

NMHG reported a net loss of $22.4 million on revenues of $328 million for the third quarter of 2009, compared with a loss of $20 million on revenues of about $700 million for the third quarter of 2008. The third quarter net loss includes a restructuring charge of $6.9 million before and after tax for NMHG's Italian operations, that was announced in early October, and some additional reduction-in-force programs.

Included in the third quarter net loss in 2008 was $1.2 million net of tax of restructuring charges, and an additional $600,000 net of tax related to the Irvine, Scotland restructuring program. In addition, the third quarter net -- 2008 net loss included a non-cash charge of $14.5 million against the deferred tax assets of NMHG, which I mentioned earlier.

Revenues decreased 53% in the third quarter of 2009 compared with the previous year, and that was as a result of a decrease in units in parts volumes in all geographic regions and as a direct result of the economic downturn in each of those markets.

Worldwide shipments in the third quarter of 2009 declined 55% to approximately 9,400 units from approximately 20,700 units in the third quarter of 2008. Now, NMHG's worldwide backlog increased slightly to 13,200 units from a low of approximately 12,300 units at June 30 and worldwide backlog, of course, was significantly higher a year ago.

The NACCO Materials Handling Group's net loss, excluding the effect of the prior-year tax charges and restructuring charges previously outlined, increased significantly in the third quarter of 2009 -- in the third quarter of 2009 compared with the third quarter of 2008, primarily as a result of a decline in gross profit of $34.5 million, partially offset by $20.5 million of favorable currency movements and lower selling, general and administrative expenses.

The gross profit decline was mainly as a result of the reduced unit and parts volume, and these unfavorable items were partially offset by decreased material costs of over $20 million and price increases in -- implemented in prior years, which resulted in benefits of $13.6 million pretax.

In addition, there were improved warranty costs and lower sale -- and of course the -- which were partly the result of better claims experience and partly lower sales volume. GS&A declined $5.2 million due to reduced workforce levels and other cost-containment actions.

And if you turn to the outlook, global market levels for units appear to have stabilized in 2009 at current low levels, especially in the Americas. Parts volumes also appear to be stabilizing around current levels. NMHG is not anticipating a market upturn of any significance in the last quarter, perhaps better put, we're not planning for any upturn. We're going to wait until we see it before we respond. It's very difficult to look forward in the market and know when the markets will turn up.

And as a result, our current expectation is for significantly lower levels in all lift truck markets in the last quarter of 2009, and significantly lower unit shipment levels and a reduction in part sales in the fourth quarter of this year compared to last year. We do expect unit bookings and part sales to increase slightly in the fourth quarter, compared with the third quarter of 2009 however.

Obviously, in light of these -- this dramatic downturn, NMHG has taken a number of steps over the last year and a half, almost two years, to respond to the market outlook. And we continue to take actions to resize the organization as market conditions warrant; we do it through both restructurings and reductions-in-force.

I indicated that in early October we announced the closure of the Italian facilities, which -- that's expected to be completed in early 2010. Benefits should be approximately $3 million in 2010, $3.5 million in 2011 and a running rate of just over $3 million as we look forward.

That restructuring program supplements the benefits of the Irvine, Scotland restructuring program, the closure of that plant as well, which were approximately $2.5 million in the fourth quarter, and we expect about $15.5 million in 2010 and annually about $18 million thereafter.

In addition, the estimated benefits at the current reduced workforce levels from the reductions-in-force implemented over the last two years are expected to be about just a shade under $12 million in the fourth quarter and approximately $50 million on a current annualized basis. It's important to note that approximately 75% of that relates in some way to manufacturing operations and reflects the very low current levels of those activities.

Additional actions that we've taken include capital expenditure restraints, additional planned plant downtime, restrictions on spending and travel, suspension of incentive compensation and profit sharing, wage freezes and salary and benefits reductions, all of which are expected to continue to reduce expenses in the fourth quarter of 2009 compared with 2008. We continue to monitor the situation closely, and if we have to make further adjustments we will.

It hasn't kept us, however, from moving forward with our product development programs. We have warehouse, truck and big truck product development programs and especially the new electric-rider lift truck programs that are progressing essentially as we had planned.

The new electric-rider lift truck program will bring us a full line of newly designed products. We introduced two series in the second quarter, and we expect to introduce additional series in the fourth quarter of this year and will complete the program by introducing the remaining series over the course of 2010.

Obviously NMHG, having suffered the losses we have so far this year, expects to operate at a loss for the full year. However, modest unit and parts volume improvements, the benefits from new product introductions and restructuring programs, reduced material costs and products costs, as well as our further general expense reductions are anticipated in the first -- in the fourth quarter, and they are expected to lead to a moderate loss in the fourth quarter.

And cash flow before financing activities is expected to improve further in the fourth quarter, primarily as a result of a reduction in working capital and in low capital expenditures.

Hamilton Beach reported net income of $6.9 million in the third quarter on revenues of $119 million, compared with net income of $1.3 million for the third quarter of 2008 on revenues of $138 million.

Despite the decrease in revenue, net income increased in the third quarter compared with 2008, primarily from an increase in gross profit. Lower product costs resulted from the decline in commodity costs, sales of higher margin in the higher-priced products, lower freight costs and cost of reduction initiatives which partially offset the decline in volumes and those were the primary factors for the improvement in gross profit, over the prior year's third quarter.

The decline in sales was really across a good many channels and reflects weak sales volume in certain segments of the marketplace, as well as some one-time placements, or short-term placements, perhaps is a better way to put it, in the previous year.

To turn to the outlook at Hamilton Beach, the economy, and obviously consumer financial concerns, still make it a very uncertain and challenging retail environment. Results vary, as I said, from channel to channel and from customer to customer. And that's resulted in lower retail expectations for the normally strong fourth quarter holiday selling season.

Now it may improve relative to the previous year in terms of the overall marketplace, but they're still at very low levels. And so, we anticipate revenues in the fourth quarter that are going to be lower than the fourth quarter of the previous year.

As a result of these anticipated lower full year volumes, obviously we took aggressive cost containment actions early in the year and, in fact, late in last year, I reported on those in previous calls. And those actions, along with initiatives to improve pricing and product positioning, and reduced product and transportation costs are expected to continue to affect results favorably in the fourth quarter, and so we should have significantly improved fourth quarter net income compared with a very weak fourth quarter in 2008.

Overall, full year 2009 net income and cash flow before financing activities are expected to improve significantly compared to the very weak 2008 results, before the goodwill impairment charge of about $80 million. And if the Company's markets, which appear to have stabilized, begin to deteriorate again, which is looking somewhat less likely, but we still keep it in the back of our minds, revenues and earnings could be adversely affected.

Kitchen Collection reported net income of $300,000 on $48 million of sales, compared with a net loss of $3.3 million on revenues of close to $46 million in the third quarter of the previous year. Revenues increased primarily as a result of increases in new store and comparable store sales at both Kitchen Collection and Le Gourmet Chef.

Comparable store transactions, and customer visits were up, although the average sale was lower at the Kitchen Collection stores, as consumers continued to seek value brands and buy basic needs items in the current economy. However, Le Gourmet Chef stores had an increase in average sales transaction as a result of improvements in merchandising and fewer markdowns, despite a decrease in comparable store transactions and customer visits.

Kitchen Collection reported slightly better than breakeven earnings in the third quarter, and that, of course, as I've indicated, compared with a large loss in the third quarter of 2008. The improvement was driven primarily by fewer product markdowns and improvements in merchandise offered at both formats, Kitchen Collection and Le Gourmet Chef.

In the prior year, the Le Gourmet Chef store format was substantially updated, including the products offered, and that required some significant markdowns in 2008. Kitchen Collection's third quarter also resulted -- benefited from lower product costs.

As to the outlook, the same uncertainties affect Kitchen Collection that affect Hamilton Beach. And although the factory outlet malls seem to be responding to this downturn better than some other channels, and despite the weakness, Kitchen Collection expects to see improved fourth quarter holiday selling season compared with the previous year, due to continued strength in the Kitchen Collection stores, and the expectation of significantly improved margins at Le Gourmet Chef, which results from the conclusion of the new product enhancement and store merchandising programs, which are really starting to payoff now.

In addition, the opening of seasonal store locations during the holiday season, capital expenditure restraints, and administrative cost control measures implemented in late 2008 and 2009, are expected to continue to improve results in the fourth quarter.

Overall, Kitchen Collection expects that its current sales and merchandising programs, and sustained improvements in logistics, are going to lead to significantly improved fourth quarter and full year results before -- in comparison with 2008 before the charge of $3.9 million for goodwill and intangible impairment. Cash flow, before financing activities is expected to be about breakeven and significantly improved compared with 2008.

At North American Coal, net income was $11.4 million on revenues of $38 million compared with $7 million on revenues of $39 million in the previous year. The increase in the third quarter net income was primarily attributable to the receipt of lease bonus payments of $7.1 million pre-tax for leasing certain oil and gas mineral rights controlled by North American Coal to a third-party.

Increased earnings of unconsolidated mines, mainly due to contractual price escalation and improved results at limerock dragline mining operations, primarily due to the new cost reimbursable management fee contracts, also contributed to the increase in net income. These increases were partially offset by reduced operating results at the Red River Mining Company, as a result of difficult mining conditions. And by an increase in income tax expense which results from a shift in the mix of pre-tax income to entities with higher income tax rates.

As far as the outlook is concerned, North American Coal expects full year 2009 net income to improve in comparison with 2008. Although results in the fourth quarter, excluding the pending Red River Mining Company sale transaction, are expected to be lower than fourth quarter of 2008. In addition, full year cash flow, before financing activities and before the affect of the pending Red River Mining transaction, is expected to increase.

Tons delivered by the lignite coal mines are expected to increase in the fourth quarter compared with -- or expected to decrease, excuse me, in the fourth quarter as compared with 2008, as a result of some early October inclement weather conditions, and an increase in customer power plant outage days.

In addition, contractual price escalation is not expected to affect fourth quarter results as favorably in 2009 as it did in 2008, because of recent declines in commodity costs. And an increase in income tax expense, resulting from a shift in the mix of pre-tax income toward entities with higher income tax rates, is also expected to continue to unfavorably affect fourth quarter results.

On the Red River Mining transaction, I'd note again, that in April of this year, North American Coal entered into an agreement to sell the assets of the Red River Mining Company to its customer for $42 million in cash, subject to closing adjustment. That sale, which is subject to customary closing conditions, including regulatory approval, does appear to be on track. And is expected to generate a substantial gain and enhance cash flow when the transaction is completed late in 2009.

The Company has a number of new project opportunities for which it continues to incur additional expenses, and expects to incur those in the fourth quarter. In the second quarter of 2009, North American Coal entered into a new contract mining services agreement to provide approximately 300,000 to 400,000 tons of lignite coal annually to a new customer. Initial deliveries are expected to commence in 2010.

In addition, in the third quarter of 2009, North American Coal entered into a new contract for mining services, to provide approximately [650,000 tons] (corrected by company after the call) of lignite coal to a customer that currently purchases lignite coal from The Sabine Mining Company, with initial deliveries expected to begin in 2013. The Company is also continuing to pursue other contract mining opportunities.

We're continuing to seek permitting at the Otter Creek Reserve in North Dakota in preparation for the eventual construction of a new mine. We're continuing to work on a project with Mississippi Power to provide lignite coal to a new coal gasification Integrated Gasification Combined Cycle power plant in Mississippi. And we're pursuing a new mine in Texas, and we're anticipating that we'll sign an agreement sometime in the fourth quarter of this year.

That completes my summary of the third quarter results, and the outlook for the fourth quarter. We'll be looking at 2010 and its outlook during the next couple of months. And be in a position at our next earnings report to provide some perspective on what we see in 2010. At the current time, we think that conditions are still quite uncertain. And so we're less clear about market prospects for the next year, than we might normally be at this time of the year.

So, we'll be pulling together our perspective on 2010. As we look forward, obviously the biggest driver in 2010 will be recovery in markets in the Forklift Truck business, and settling in with the full benefit of all of the cost reduction and cost containment actions that have been taken in that business over the last year-and-a-half or two years.

That completes my remarks. I'd be happy to answer any questions if there are any.

(Operator Instructions)

While we are waiting for listeners who have questions, to press star 1, let me provide you with my contact information for any additional questions you may have after the conclusion of today's call. That phone number is 440-449-9669.

Yvette, are there any questions?

Yes, ma'am, your first question comes from the line of Lionel Jolivot. Please proceed.

Thank you. Just if we started at NMHG -- I mean, obviously you've done a very good job on the cash front, and I saw in your guidance that you expect to generate more cash in Q4. I'm just wondering, how much room do you have left in working capital in Q4, and going into 2010?

Well, I would say that in large measure, we expect to be pretty much at the point of having completed our working capital program by the end of the fourth quarter. There could be some more minor adjustments. The -- there is one portion of working capital which relates to the retail operations that are being divested.

It's working capital, but it's not really part of the capital of the wholesale business, but there is a process of a winding down the amount of capital tied up in those businesses, which takes a while, so I would simply distinguish between wholesale working capital and the others.

The other thing I would note with regard to your question is that, and my answer to it, is that when I say that the working capital will be wound down, what I really mean is that receivables and inventory will be largely wound down. I think it still remains to be seen a little bit, when payables will level out, and we've seen some upturn in payables in the third quarter, and that might take until the first quarter of the year to have some stability.

We've been working off inventory, and obviously the flip side of that is that we're not buying inventory, and therefore, our payables are low. So in that sense, there's further opportunity on the payable side.

Okay, and I mean, I know you were in compliance with the covenants of your credit facility at NMHG this quarter, but I mean, it remains pretty tight, and it forces you to basically keep a lot of cash at NMHG. I'm just wondering, I mean, have you considered refinancing your credit facility?

It seems that the credit markets are relatively open and a lot of companies have been issuing secured notes, which would effectively take out all the covenants you may have. I mean, is it something that you've been looking at, or you've been looking at going into year end?

Well, what I would say is this, that we always look at the financing of the business, and certainly the state of the current credit markets is a factor. However, we have a lot of tools at our disposal for insuring that we're in compliance with our covenants, and as a result, we feel quite comfortable that we can live within our covenants. And given that, we are inclined to keep in place the very attractive borrowing rates that we have in our existing borrowing agreements.

I think perhaps the question might relate, in the end, for us, might relate more to whether we should in some way, reduce our borrowings by using some of our cash to reduce those borrowings, or whether we keep them outstanding as we anticipate an upturn. And in that sense, we'll be looking at it, but not so much in the sense of refinancing sooner than would be prudent, but we certainly are keeping in mind credit market conditions and what we think they might be, at such time as our existing agreements mature.

But as you well know, any company in any business that refinances agreements that were made at the time that our financing agreements were entered into, is paying a significantly higher interest rates, and, in fact, the covenants tend to be more restrictive and not less restricted, even if there is more collateral provided.

Okay, thank you very much.

Your next question comes from Frank Magdlen. Please proceed.

Hey, Al.

Yes.

In looking at your various businesses and it's been difficult to gauge demand and right size the businesses, but where are you in that process of thinking? In other words, if business stays relatively flat, at this lower level, have you completed enough downsizing or, in the downsizing plan, have you anticipated some upturn in the next six to nine months where we could see breakeven, say, in material handling, maybe a little sooner?

Let me just go through the businesses. We feel that the coal company is at levels that it ought to be at, the business is doing well. We think it will do well next year. We -- at Hamilton Beach, we have taken significant actions. We think that they're manned at the proper level unless something dramatic happened on the downside, which we certainly don't expect, although we watch very carefully.

Kitchen Collection has done a very effective job of streamlining their operations, both in the Chillicothe headquarters, and also in the store operations, and we feel very comfortable there.

NACCO Materials Handling Group, I think, is using this as an opportunity to try to ensure that it has the most cost effective structure and we're pretty well through that, and expect that we will be by the end of the year. I don't see much opportunity for further reductions in people. I think what we really want is the full benefit of the actions that we've taken.

Secondly, we've got a number of new products out in the marketplace, which we believe can help us enhance our share position, in both the Americas and in Europe, even in light of a market that is not recovering in the way that it has been typical in past downturns.

And certainly, as to breakeven, we have the objective of breaking even as quickly as possible, very much in our sights, and as we go through our planning process, we're going to keep that very clearly in mind, and have some perspective on that, that's better than we have at the moment, when we talk to you next.

In the meantime, I think that you should feel that the actions have been taken that are prudent and wise, both with regard to our manufacturing facilities, we really have an outstanding footprint in our manufacturing facilities in two senses.

One, in terms of the number of facilities and what they're focused on, and also in terms of their enhanced ability to deal with currency issues, either by low cost sourcing of materials, of purchase materials, by outsourcing certain activities from higher cost plants into lower cost environments where we don't operate them, but are purchasing them.

And so the manufacturing footprint, I believe, in Europe, the Americas and in Asia-Pacific is a very sound one. And what we need now to do is ensure that with a combination of market upturn and the new programs that we have in product, pricing, marketing, distribution, that we can gain -- and which will help us to gain share between market growth and share gaining efforts, that we can fill up the facilities in due course that we have.

I think, as far as our SG&A levels are concerned, that they're about where we feel that they should be, or they will be very shortly. We see very limited opportunities, really, effectively none in the Americas.

Maybe some additional opportunities in Europe, and I think when the retail structuring programs are completed in Asia-Pacific, there may be some modest opportunity there, but it's -- that's pretty well complete at this point. But we've got a lot of improvement opportunities that are improvement actions that have been taken which should provide a pay-back for us as we look forward.

Thank you. Could you just give us a little color into the new order rate? It's up a little bit sequentially. Where is it coming from? Is it particularly the new products or is it particularly any particular type of industry?

That's a hard question to answer, really, because there's so many products, so many channels, so many market segments. And I would prefer to really focus on the fact that, particularly in the Americas, we seem to have hit a bottom and if anything, it's getting a little bit better in Europe. It's not quite so clear as to whether things are going to get better. September was a little better than the previous couple of months, but, boy, reading anything into one month's results is more than I can interpret.

So I think the European economy has been weak, but it's showing some signs of upturn in a general sense and when that flows back into the forklift, truck business, we'll have to see.

So -- and then there's always sort of the customer-driven side of it. It certainly hasn't helped us to have companies like General Motors, Chrysler and Ford under the kind of pressure that they're under as far as our US markets are concerned. So there are many factors at work and we keep working with our dealers to -- and our national accounts efforts to exploit the opportunities wherever they are.

But, obviously the automotive sector is very weak at this point and that's one that we don't see coming back. Probably some of the warehousing segments will start to strengthen sooner rather than later. But again, I'm just reluctant to make any prognosis at this point because we haven't seen enough trends to really make it reasonable to make any kind of judgment about those kind of things.

Thank you very much.

Yes.

Your next question comes from the line of Schon Williams. Please proceed.

Hi. Good morning.

Good morning.

Al, could you help me out with the margins within material handling, within wholesale this quarter? I mean, you guys were -- stripping out the restructuring costs, you're largely break even in Q2 and that did not seem to carry over -- any of that benefit didn't seem to carry over in Q3. I mean, was there anything that artificially boosted margins in Q2 or anything that's providing a particular drag in Q3 that's kind of not normal?

Well, it's probably wise to keep in mind that the third quarter is the summer holiday period and as you can well imagine, this is a year in which we certainly wanted to take our summer holidays and -- because the people are off and we have the fixed costs still hitting us. But I think there has certainly been some pressure on prices. And I think we're hopeful that that pressure will begin to abate.

Why has there been pressure? I don't think it's just because the markets are down and everybody's competing for a smaller pie. I think it has much more to do with the fact that some of our competitors appear to have had enormous inventories at the time the market collapsed.

We were not in that position nearly to the degree that our competitors were. Obviously, we had some inventories we had to work through and some pockets where there are longer supply chains, but some of our competitors have had huge amounts of inventory and they, like us, are trying to liquidate inventory and working capital under these conditions and pay back the banks at a time when the covenant constraints can be significant.

And so in my judgment, that's probably led to some pressure on prices. I think our material costs have been declining. We gave you an indication of that. These are very unsettled periods. There's a lot going on in some of these numbers that affects LIFO and accounting transactions and currency has had a significant impact as well.

I think perhaps the thing to do is to wait and see how the fourth quarter starts to shape up. I think I said, in my remarks, that in the fourth quarter, we're hoping to have a pretty moderate loss.

So I think what you're going to see is that things are going to stabilize, some of the elements that affect the one or two quarters will dissipate and we hope to be in an improved condition in the fourth quarter and our unit volumes were down in the third quarter in comparison to the second quarter as well. So that affects the absorption, in addition to the factory down time for vacations.

Right. And with the -- I mean, did you mention -- was there a LIFO charge in the quarter? Was that material?

No, there just are constant adjustments that we take in terms of what's capitalized and how variances are hitting and so on and so forth. It's just -- there are a lot of moving parts is all I meant to say.

Okay. And can we go back to the savings and can you help me discern what is truly incremental versus what's already kind of baked into the numbers? I mean, obviously the Modena closure that will be incremental next year. I mean, is there -- are there still incremental savings from Scotland that should be carrying through into Q4 and into 2010?

Or, are those numbers -- have we really realized the full savings that we're going to get from that and that's already baked into the Q3 number and there aren't any real incremental savings beyond what you already see in Q3?

Well, with regard to Irvine, there are probably not a lot of further incremental savings. We, I think, are pretty close to the running rate. Obviously if you look at 2010, as a year, it will improve because we had, in the first quarter, some substantial costs associated and no benefit, particularly, from the Irvine closure. So only in the last half of the year will you have the fuller impact.

I agree with you, the program at Modena, the close of that facility, will be a benefit. We are completing some additional cost reduction actions, including additional layoffs that are reflected in the charges that we took this quarter that will have an impact in -- from a reported earnings point of view, probably practically beginning in the first quarter '10, rather than this year. And from a cash point of view, it'll be a little further on, but from a reported earnings point of view, that'll have an impact and that's -- those programs are underway.

So there are some programs that are underway, but I think it's getting the full annualized benefit, which we're hoping to really see in a significant way in the fourth quarter, and then have that flow through over the course of 2010.

Right. But there shouldn't be any real incremental improvement from Q4 -- from Q3 into Q4 just from Irvine. I mean, you'll get benefit next year, just as those savings are annualized, but there's no kind of incremental dollar pickup in Q4 versus Q3.

No.

Okay. And then what are you expecting dollar wise for 2010 that's incremental to 2009?

From what?

From Irvine.

Oh, I don't know that I could give it to you dollar wise. I'd just give you the annualized number, which I think we put in our release, it's approximately $16 million, $15.6 million, in 2010 and $18 million thereafter.

So you think you got half of that in 2009? So I mean, ball park, I can say there's another $7 million to be gained in 2010?

I'd rather not get that specific. I think you can draw your own conclusions. I haven't got the numbers and I wouldn't like to be quite that specific, but you're in the general thinking process, I would say, it's a good way to think about it.

Okay. And could we just briefly talk about GE credit? Your finance arm, for materials handling. I mean, is -- I -- we haven't talked about that business much. Is there any drag that's being -- are you seeing any drag coming from that business? Has GE changed the way in which they're conducting business within that unit that is negatively impacting you?

No, I think it's continuing to be -- to work in a very sound way. The most important GE program is really in the US. And that's a good program for both GE and for us. Outside of the US, the programs are -- with GE are much more of a facility and if GE isn't competitive, there are opportunities to get financing through other folks. And I think what I would say in answer to the implicit question you have is that while GE has certainly heightened up its approach, so have we.

We have potential -- we have requests for credit extension from borrowers whose credit quality has deteriorated. And so we have absolutely a joint interest with GE in making sure that we're lending in an appropriate way to ensure that we have a sound joint venture business, which is what we have with GE in the Americas.

All right. And I mean, but I guess to get back to my point then, I mean, is -- has there been a material drag from that business? I guess --?

Are we losing money? No.

Okay.

Schon, I guess to help you a little bit on the income statement, if you look at the line, the income from non-consolidated, non-controlling interests, you can see that our numbers dropped $300,000 between last year's third quarter and this year's third quarter. Now that also includes some other businesses in it, but that is not a material change.

Okay.

I mean, that's where that would be recorded.

Okay. Good enough. And then Hamilton Beach, it looks like you -- there was a statement in the press release, there was reduced distribution at certain retailers. I mean, can you add a little color there? I mean, did you lose a distribution channel or a partner there? Is there -- and if so, is there any chance we can replace that in the near term?

Well, I think, replacing it is -- replacing the volume as opposed to channels is very important. And I'd just give you some examples. Some of our international businesses have been quite weak. The -- we have the Hamilton Beach commercial business that sells a lot to restaurants and bars. And it's at a lower end. It's a capital goods investment.

Well, you know what's happened to capital goods investment and restaurant business. I mean, it's just collapsed. And so that channel is very weak. In the US consumer business, there are relative changes in the position of Wal-Mart, Kmart, Target, Kmart-Sears that is, some of the smaller players have done less well than others. The high-end business has declined for certain products quite dramatically. So there are a lot of different factors coming to play.

In addition, we have certain seasonal in and out placements and we have a lot of discipline as to what we really want to go for and what we don't. And I think some of our competitors have had higher inventories and have been anxious to move some of that stuff.

If you look at our results at Ham Beach, you can see pretty clearly that we like the profitable company, not just a company with a very large top line. And so we have a lot of discipline in that whole process and -- however, we're working very hard to ensure that we have the right products in the pipeline.

And the other thing I'd be -- urge you to have a little bit of caution on is that while there can be some of these seasonal placements or number of points of distribution within a particular customer that can change, that also retailers have their own pattern of when they order and that can influence the volume of sales, let's say, in September as opposed to the volume of sales in October.

Now, from a full year point of view, that's not going to affect the results, but it's hard to sort all that out. I think clearly some of the retailers are being cautious about the fourth quarter. They're controlling their inventories very carefully and so -- and they just -- they don't buy from us. And they deplete what they have and then expect us to turn around very quickly, sometimes on a dime.

But that's the environment we're dealing with. I think as consumer behavior starts to improve, some of these issues will decline. But at the end of the day, it's going to be our own ability to innovate and areas where we can be rewarded with reasonable margins. I think you know that several years ago, I don't remember quite how many now, two or three years ago, we made some significant decisions to withdraw from some low-margin business.

And it just doesn't provide the returns that we need and we are not going to go back into those businesses. And that's a relevant -- particularly relevant because if there's any one underlying trend, it's in the marketplace where these kinds of products that Hamilton Beach sells, it's that the customers are looking for real value for money and they're trading down.

All you have to do is look at the relative results of Wal-Mart, with the increases across their business, and compare them with certain comparable areas in Target, to see how consumers are behaving differently now than they were just a couple of years ago. I think that's about the best answer I can give you.

Okay. And then the last question, and maybe this one's for Ken here, any guidance, maybe, on the tax rate going forward? Up, down, ball park it, any help there?

Yes, I think I'd look at the tax footnote. We have income, or more specifically losses, in jurisdictions that we do not benefit. You need to exclude those items and then once you do that, you end up with a rate that's somewhat more consistent.

Okay.

I don't know if that's helpful, but that's the mechanism that works under those tax rules.

Let me just point out, then, and as an additional note to Ken's comment, that as earnings come back, and some of these areas, and as volume improves from these very depressed levels, that we have some -- we are -- just as we're not getting a tax benefit now, we are not going to have a tax cost in the future in those jurisdictions. So to the extent there's a silver lining in that, that's it. It's going to come back and benefit us as markets come back.

Now the other comment I'd make in -- to add to Ken's is that you really need to look at tax rates individually by subsidiary. And I think you can do that, but the sale of the oil and gas leases, for example, at North America Coal, were taxed at a higher rate than many of our coal mining operations are taxed at, and therefore their average tax rate has gone up.

And it's kind of a peculiar item because the way the accounting works, we got all the benefit of the -- of those payments in the third quarter, in terms of reporting them as revenue and income, and then we charge an average tax rate. So what you'll see in the fourth quarter is that the tax rate in the coal company will go up and the reason it will go up because of what happened in the third quarter, not because of anything that happens in the fourth quarter.

So it's a -- you touched on an area, which I find very complicated and hard to get a good fix on, but I think thinking it through unit by unit is probably the most helpful way and I think Ken's comments had more to do with NACCO Materials Handling Group than in the other businesses.

I think Kitchen Collection is pretty straightforward, Hamilton Beach, pretty straightforward, with the coal company, I've given you the issue and it depends a lot on where we get the benefit of depletion accounting and where we don't. And obviously we don't get it on an oil and gas mineral rights sale. And then NACCO Materials Handing Group, we have these areas where we've got to earn some income before we get the tax benefit.

All right. Thanks, guys.

Okay.

(Operator Instructions)

Okay. It sounds to me as though questions have been completed and we know that at the last conference call, there were some -- somehow we didn't get the questions showing up and ended things too soon. I hope we've covered all the questions at this session. And in any event, as Christy indicated to you before, she's available to follow-up on any further questions that may develop in your minds as you think more about this release. Okay. Thank you.

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