NACCO Industries Inc (NC) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the second quarter 2011 NACCO Industries earnings conference call. My name is Francine, and I am your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions.) I would now like to turn the presentation over to your host for today's call, Ms. Christina Kmetko. Ma'am, you may 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 second (corrected by company after the call) quarter ended June 30, 2011. If anyone has not received a copy of the earnings release and would like a copy of the Q, please contact 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 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 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-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 most recent 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. For those of you that have seen the press release, you'll know that NACCO in the second quarter had net income of $19.2 million or $2.28 a share on revenues of $811 million, and that compared with a year ago second quarter when net income was $15.9 million or $1.91 per share and the revenues were about $599 million.

NACCO Materials Handling Group reported net income of $19.2 million on revenues of $648 million, and that compared with net income of $7.3 million on revenues of $413 million in the year ago second quarter. Operating profit was $27.5 million, and that compared with $9.8 million a year ago.

The revenues increased 57% in the second quarter compared to the year before. That was primarily the result of a significant increase in unit volume around the world, favorable foreign currency movements, and the favorable effect of unit price increases which were implemented late last year and early this year primarily in the Americas.

In the second quarter of 2011, worldwide new unit shipments increased to 19,900 units, up from shipments of 19,400 units in the first quarter and 13,800 units a year ago. The worldwide backlog was 25,100 at the end of June, and that compares with 21,700 at the end of June a year ago and 24,800 at the end of March.

Second quarter net income for NACCO Materials Handling Group increased significantly compared with the second quarter of last year primarily due to an increase in gross profit which resulted from higher sales volumes of units and the favorable effect of price increases, which generally offset material cost increases during the quarter. In addition, gross profit improved as a result of lower manufacturing variances due to higher production levels in 2011; an increase in employee-related expenses, which resulted from the full restoration in 2011 of all compensation and benefits; unfavorable foreign currency effects, primarily from the absence of a prior year benefit related to the release of deferred gains on foreign currency contracts and higher income tax expense as a result of higher pre-tax income in 2011. And the absence of favorable tax adjustments recognized in the previous year partially offset the improvement in net income.

As you look toward the rest of the year, in total operating expenses are expected to be higher compared with 2010, but at a decreasing rate each quarter in 2011 -- and NACCO Materials Handling Group also anticipates further increases in material costs, particularly steel, in the second half of 2011.

Importantly, the Company's new electric rider warehouse, internal combustion engine, and big truck development programs are continuing to move forward, and overall net income is expected to increase significantly in 2011 compared with 2010 as a result of a substantial improvement in volume.

The deferred gains on foreign currency contracts will not reoccur in 2011 and the effective income tax rate is expected to be higher in 2011. Also, despite the additional volume, earnings for the second half are expected to be substantially lower than the first half and have smaller improvements over prior years as a result of scheduled third quarter plant shutdowns, our regular summer shutdown program, which always has a significant impact; increasing material costs; increased manufacturing overhead; and higher selling, general, and administrative expenses as a result of the increased employee-related costs that I had touched on earlier.

Cash flow before financing activities for the full year is expected to be higher than a year ago.

And from a longer term perspective, NACCO Materials Handling Group continues to focus on improving markets on new lift truck units, especially in the new -- in its internal combustion engine business where we believe that the new products which have been or are being introduced can have a significant impact over the next couple of years.

In addition, NMHG has the objective of gaining market share as a result of these new products, which are designed to meet a broad range of specific market applications and considerable detail cost effectively and through enhancements in its independent dealer network.

And Hamilton Beach net income was $1.3 million in the second quarter. Revenues were $104 million, and that compared with $3.8 million a year earlier and revenues of $103 million. The decline in net income was primarily the result of margin compression on a broad range of Hamilton Beach product lines, mainly due to higher product and transportation costs. But it was also the result of a $900,000 pre-tax charge related to moving to -- the Hamilton Beach distribution center into a larger facility during the second quarter and higher bad debt expense of $800,000 due to a customer's bankruptcy.

From the point of view of the rest of the year, the small kitchen appliance market, in which Hamilton Beach's products really focus, has softened in the first half of 2011. The Company's target consumer, the mass market consumer, really continues to struggle as a result of financial concerns and high unemployment rates. As a result, this segment of the consumer market is expected to remain challenged. On the other hand, the international and commercial product markets remain strong, and we expect that strength to continue throughout the remainder of the year. Hamilton Beach continues to focus on strengthening its market position through product innovations, promotions, increased placements and branding programs, together with appropriate levels of advertising.

The Company expects to introduce innovative products in several small appliance categories. In the second half, Hamilton Beach expects to launch The Scoop, a single-serve coffee maker in the Durathon iron product line. These products for which we have high expectations, as well as other new product introductions in the pipeline, and key placements for the third and fourth quarters of the year are expected to affect revenues favorably. And as a result, Hamilton Beach currently anticipates full year revenues in 2011 to increase compared with the year before.

Overall, full year net income is expected to be somewhat lower than 2010 due to the margin pressure from increased transportation and product costs. The Company is, of course, monitoring its commodity costs closely and does work to adjust product prices and placements as appropriate to the degree that it can manage those programs if product costs continue to increase, which is really our expectation.

Nevertheless, from a full year perspective, price increases are not expected to fully offset cost increases over the course of 2011, and Hamilton Beach does anticipate that 2011 cash flow before financing activities will be higher than 2010.

Kitchen Collection had a net loss of $2.7 million on revenues of $40 million. That compared with a net loss of $1.8 million on revenues of $41 million in 2010.

The second quarter revenues declined compared with the second quarter of 2010 primarily due to a decrease in Le Gourmet Chef comparable stores sales. Those -- that was a result of fewer customer visits and a decline in store transactions as a result. The net effect of closing unprofitable stores and opening new stores also contributed slightly to the decrease in revenues.

At June 30, Kitchen Collection operated 240 stores compared with 224 at June 30 a year ago and Le Gourmet Chef operated 61 stores compared with 66 stores a year ago. Kitchen Collection recorded a higher net loss in the second quarter compared with the previous year as a result of increased store costs due to an increase in the number of stores; lower margins at Kitchen Collection comparable stores, which was caused by a shift in sales to lower margin products; and an increase in selling, general and administrative expenses primarily as a result of higher employee-related costs.

Again, as was the case with Hamilton Beach, high unemployment rates and fuel prices along with other financial concerns are expected to continue to constrain consumer spending levels for Kitchen Collection's target customer, creating a challenging retail environment. However, as a result of opening a significant number of new Kitchen Collection stores over the remainder of the year, Kitchen Collection expects a modest increase in revenue in 2010 compared with the previous year.

The Company is going to continue to refine its promotional offers and its merchandise mix in both formats, and the opening of new stores, the renegotiation of leases, and the Company's continuing program of closing underperforming stores are also expected to contribute to improved results in the second half of 2011.

In addition, as I mentioned earlier, during the second quarter of 2011, Kitchen Collection completed the combination of its two distribution centers into one larger facility, and that's expected to improve distribution operations and increase efficiencies. Both of the formats were in the new facility and shipping by May. The Company anticipates increased product and transportation costs in 2011, but expects to offset those increased costs through pricing and other actions as needed. Overall, Kitchen Collection expects a slight improvement in full year net income and an increase in 2011 cash flow before financing activities.

North American Coal's net income for the second quarter was $4.6 million on revenues of $19.4 million compared with $11.3 million on revenues of $42.3 million a year ago. And the year ago numbers included North American Coal's contract at the San Miguel mine, which is now expired, and second quarter results included $11.3 million of revenue and about $300,000 of operating profit related to that closed or discontinued mining operation in San Miguel.

Revenues decreased 54%, and that was primarily due to the expiration of the San Miguel contract, but also, importantly, to the absence of a $7.6 million of revenue which was received from the Mississippi Power Company in the second quarter of 2010 for the reimbursement of previously expensed costs. Fewer deliveries at the consolidated mining operations as a result of significant -- of a significant number of unplanned outage days at a customer's power plant and reduced customer requirements as well as a decrease in royalty and other income also contributed to the decline in revenues.

Net income decreased compared with the previous year primarily due to the absence of the income of $7.4 million, or $4.4 million after tax, related to the reimbursement from Mississippi Power in 2010 and a decline in results at the consolidated mining operations mainly as a result of fewer deliveries and higher costs of coal sold as a result of reduced production levels matching customer inventory requirements.

As you turn to the outlook, North American Coal expects solid performance at its coal mining operations. However, the tons delivered are expected to be lower as a result of the expiration of the San Miguel mine contract; one of our power plant customers' significant unplanned maintenance outages in the first half of the year; and overall lower customer requirements. Royalty and other income in 2011 is expected to be lower than 2010.

Limerock deliveries are also expected to be lower in 2011. In 2010, limerock customers rebuilt stockpiles and they're not doing that in 2011 and customers -- and the requirements are lower due to continued weak economic conditions in the Southern Florida housing and construction markets.

The new unconsolidated mines which are in the development stage and that won't be in full production for several years are expected to generate modest income. In addition, early this year, North American Coal finalized a new agreement to provide services to operate a refined coal processing facility through 2018, and that agreement will generate some modest income in the rest of this year.

North American Coal is also pursuing new project opportunities and expects to incur additional expenses for them in 2011. In particular, the Company is moving forward to obtain a permit for its Otter Creek reserve in North Dakota in preparation for the expected construction of a new mine. The permit is anticipated to be issued in the second half of 2011.

Overall, the Company expects that 2011 net income will decrease significantly compared with 2010 mainly as a result of the absence of the reimbursement of the previously expensed costs of $7.4 million pre-tax coupled with substantially reduced royalties and unplanned maintenance outages. Higher selling, general and administrative costs and the absence of San Miguel are also expected to contribute to a decline in full year net income. However, cash flow before financing activities is expected to be higher, and that is dependent on the mine development activities occurring as they are currently planned.

That completes my overview of the earnings, and I'd be happy to try to address any questions that you may have.

(Operator instructions.) We have a question from the line of Schon Williams, BB&T Capital Markets.

Hi. Good morning.

Good morning.

I wondered if we could just start off with material handling. Could you talk about how you feel about lead times currently? I know that over the course of the first half of the year there you were, I guess, trying to do a little bit of catch-up there and bring those lead times down. How do you feel about current levels?

They're not too bad. Our volume levels are up, so the same level of backlog is leading to a little bit lower lead times, and I think in most of the areas that were problematic, we've pulled them in, so they're not too bad. It would be nice to have them a little better, but I'm -- overall, that's not a major concern.

Okay. And then on the orders there, it looks like unit orders actually ticked down slightly versus Q1. What would you attribute that to? Is that just kind of normal seasonality or is there anything you're concerned about in terms of end market demand?

Well, no. The markets were reasonable in the second quarter. I think there's always individual company cyclicality -- not only us, but others in terms of -- in certain kinds of promotional programs, price increase activity. And it's pretty hard to look at volumes in terms of orders on a quarter-by-quarter basis. You really have to take a longer term point of view. We have national account customers that buy at certain times in the year and so there are a lot of factors that are involved.

Okay. And then could you talk a little bit about maybe pricing within Material Handling? I mean, you mentioned that you're expecting some higher raw material costs in the back half of the year. I know you put through pricing at the beginning of the year. Is there any -- what's the likelihood of more pricing coming in the back half of the year?

Well, we're certainly looking at that. I think that we feel that we got some of our pricing in place perhaps a little bit in advance of some of the material cost increases that we were anticipating. We've got a pretty good system for forecasting cost increases that we have put in place over the last couple of years. And that allows us to think more in advance about the need for price increases at the times that the trucks will actually be produced. Because, obviously, we don't ship the truck on the day the order is received, and in that lag, you can get substantial changes in material costs. So we're trying to anticipate that and we have a number of mechanisms to deal with that. One is general price increases; another is managing discount levels that are offered to customers. And I think the main thing is that pretty much everybody in the industry is faced with the same cost increases and any of the Japanese competitors are faced with the further problem of high yen content relative to us.

So, we'll continue to try to enhance our margins. The biggest area that we want to enhance them is in our internal combustion product line. But that kind of enhancement probably has less to do with the recovery of material cost increases than it does with being able to sell lower cost product applications that don't need a higher cost product. And those are the kinds of products that we're introducing over the next year and a half or so, and our hope is that that will have an increasing effect on our overall margin position over time.

Okay, and then Asia Pacific is a small piece of the business. But I noticed despite some nice volume recovery in that region, it looks like it was actually unprofitable in the quarter, a slightly negative operating margin within Asia Pacific. Can you just comment on what you're seeing in that market and what is the thought maybe going forward on profitability in that region?

Well, it's a really tough situation, and we're working it, but it's going to take a while to unravel all the pieces. And the core of it is that the vast majority of the product that is sold in Asia Pacific region is coming from Japan. And the relative cost of product for Japanese producers has gone way up because of currency changes, so it's a struggle to source from our Japanese plant, which has been the primary source for that plant.

And it's probably worth keeping in mind that we have an unconsolidated and quite large 50/50 joint venture in Japan, which has generated profitability but is not consolidated at the sales and operating profit level. And so there's a big piece of the business that isn't as visible in the numbers that we report. And that's integrally related with the operations in Asia Pacific, which in a way are largely a distribution arm for that business. We do expect over time to source more product from China to -- at much lower cost. We have our own production facility in China. We have other product arrangements in China and it's all part of our overall internal combustion engine product development program that I outlined earlier. So over time, we would certainly hope to adjust those margins, but in the short term, the very, very strong yen is a huge challenge.

Okay, thank you. And then kind of moving on to Hamilton Beach, it seems like you've seen some pricing pressure within that unit for several quarters now. I'm just -- I'm trying -- I'm thinking out loud, when does that pricing pressure end? As long as we see kind of a weak macro environment, would you expect that pricing pressure to continue? What are the factors that's going -- that may help turn that around?

Well, an awful lot depends on the mix of products, and I think the biggest opportunity probably lies in innovative products that have higher margins. The newer products that I mentioned, in particular, The Scoop coffee maker, the Durathon irons, these are products with the potential to have enhanced margins.

We went through a period in late 2009 and early 2010 when we had been faced with some very significant cost increases. We got price increases and then the costs went down. So, we had higher margins in some ways than we might have realistically anticipated during that period of time. But I might add that all of this pressure on margins and -- is really in our US consumer business, not in our commercial business, which has good and improving margins, and our international business has improving margins in general.

And I think that some of it is related to consumers buying in this difficult economic environment products that have lower margins. And we're seeing that at Hamilton Beach -- I mean at Kitchen Collection, as well as at Hamilton Beach. So, I think it may depend, to some degree, on the macro-economic environment for middle market America and then, as well, on our own innovation,. And obviously, we will always strive to enhance our margins, to get them to levels that we would like to get them to as -- but we have been -- I think a lot of the pressure has come from increasing costs in an environment where it's very difficult to pass along increased prices. We do change the products to lower cost products in some cases where we can do that. There's some evidence that material cost increases are starting to abate, but it's too early to really call that. But that would take the pressure off the margins in probably the most direct way other than any other factors I mentioned.

Okay. I know you mentioned some of the new products there and you seemed fairly confident that that is going to aid the back half in terms of volumes for Hamilton Beach. Can you just help me understand why are you so confident, I guess, that those are going to be received well? Do you already have agreements in place with the retailers that say they're going to take so much? Again, just kind of help me understand --

No. We feel confident for -- reasonably confident for a number of reasons. One, it's not just the new products. We have added promotional placements in comparison to the previous year. There are a number of sources of volume improvement that we are optimistic about. Our international and consumer goods businesses have both had good volume increases and we think that some of the promotional activity will be very helpful in the second half in the US consumer business.

But very specifically, your question on The Scoop, you may be aware that the sort of fastest growth segment of the market has been the single-serve coffee makers and particularly the Keurig coffee maker. That coffee maker uses a rather expensive K-cup concept and the cost of a cup of coffee is really -- single-serve cup of coffee is really very, very high. In addition, we don't feel that the brewing time and the quality of the coffee taste is as good as our new product. And the concept behind The Scoop is that it's a single-serve coffee maker which uses grounds and doesn't have all the cost and the environmental issues associated with a packaging concept. So, we feel that it can take advantage of the growth in the single-serve market and the variety of coffees that are available, provide a terrific quality brewing capability and be much lower cost in a market for which lower cost should be very attractive.

In the case of the Durathon iron, we've had very good uptake in the limited exposure that it's had so far. The soleplate concept is, we think, going to be very attractive. These are very innovative products, and so that's, I think, the reason we're optimistic.

We were optimistic when we introduced the Brew Station concept a number of years ago. That was a fundamentally different concept. It didn't have a carafe, and it had a separate heating element for brewed coffee in comparison with the initial drip coffee generation. And that's still a mainstay in our business. So where we think we can identify a real market need and trend and meet it with a new product, we feel comfortable that we understand how those markets should work.

Okay, and then maybe turning to coal here. Could you just -- can you tell me, do you have any expectations for significant planned outages in the back half of the year? I know there was -- there were some maintenance outages at the mines that sort of affected deliveries in this quarter, but anything that you've got kind of on the books for the back half of the year?

Well, our biggest concern are unplanned outages, not planned outages. The planned outages occur with some regularity and that's not where the issues are. It's plants -- two big factors. We've had one particular power plant that has had considerable maintenance problems and down time in the first half of the year. We hope it's better in the second half, but there's no -- no guarantee. It's -- it's not a situation over which we have much control.

And then there's been some diminution in demand up in the North Dakota area because the really unusual amount of rain has led to a surplus of hydroelectric power. And that is sold at pretty low marginal rates and it means that some of these other plants have reduced demand as a result of that. So, those are the two big factors, and it's hard for us to predict those with any certainty, but it's not really the planned outages that are driving the issues.

Right. But it's unusual for you to have a big planned outage within the unconsolidated mines -- affecting the unconsolidated mines in the back half of the year. And I just want to make sure that I'm -- if you are anticipating one, I've got it kind of baked into my numbers. I mean, can you just confirm that there's no major planned outages in the back half?

We'd have to get you some additional information on that. I'm really not --

Okay. That's --

-- capable of answering your question at that degree of specificity because everything has to be compared with the previous year and I just -- I don't have detailed perspective on that. And as, again, I say I don't think that's the driver.

Okay. And then as far as the unplanned outages, I mean, why are you confident that -- I mean, were the issues in the first half of the year with the consolidated mines -- I mean, do you think those were temporary issues and that they should be fading in the back half?

Well, I don't think they should occur at all. I think the power plants ought to be run with -- in a way that keeps their uptime up at levels that some of our operations in North Dakota run at and some of the others. But again, I'd just say I don't have a crystal ball on that. I wish I did.

I mean, if you had your way, would you exit those contracts that are down in Mississippi there?

No. No, I think they'll be fine in the long term, but the customer's got to get focused and get those issues resolved.

Okay. And then last question for you here, Al. Cash continues to build on the balance sheet. I mean, I would expect some cash build in the fourth quarter as well given the seasonal nature of the housewares business. Any thoughts on where you'll be deploying that cash kind of down the road?

Not at this point. I think we do expect that we'll continue to look at refinancing and those of our businesses where that seems appropriate and so we'll be analyzing our debt levels. We'll be looking at a variety of options, but nothing specific.

All right. Thank you for the update.

You're welcome.

And we have a question from the line of John Curti of Singular Research.

Good morning. With respect to the Hamilton Beach business, what percentage of the business is international and commercial, which seems to be faring a little bit better in terms of strength and the ability to offset price increases?

You know, I really don't have those numbers handy in the top of my head, but I would guess it's somewhere around 65% domestic and 35% international and consumer. But we can check that for you --

All right.

-- if you get in touch with Christy.

All right. Then on the Kitchen Collection business, what kind of savings did you anticipate getting from the combination of the two distribution centers?

We really haven't put a number to them, but there'll be some efficiencies. I don't think they'll be enormous. Importantly, it gives us perhaps a better opportunity to manage our inventory levels more efficiently to combine shipments between Le Gourmet Chef and Kitchen Collection stores more effectively. The way I would look at it is that it will give us some, but it's not going to be a major -- not going to have a major impact from your point of view.

Okay. And then with respect to the number of stores in each concept, you've been closing under-performing stores, adding a few stores. With the store base where it's at right now, how many stores still probably could be possibly be looked as being targets for closure? And also with respect to the store base, you mentioned the ability to renegotiate leases. How many leases do you have coming up over the next, say, two or three years when -- where if that's significant, you could maybe save some --

We probably targeted on the order of 20-ish stores where we'd like to see some changes in rents or closure, one or the other. But it's on that order. And some of the biggest problem stores have been closed. There are a few, maybe a half a dozen, that are more significant. So I think the real driver is going to be two things -- one, the opening of new stores and, two, consumer traffic and especially factory outlet malls but also other kinds of malls. That's a big issue. Gas prices are higher. I discussed some of the other factors, as well, that have an influence on middle market consumer behavior, and I think those are very much the constraining issues for us right now.

In addition, it's probably relevant to note that in a tougher economic environment, the Le Gourmet Chef format is a little more up-market than the Kitchen Collection format, a little more focused on entertaining and activities of that nature. And as a result, when pocketbooks are tight, it can suffer a bit more. Likewise, when things get better, it tends to jump up a bit more. So, I think the traffic issue and consumer purchasing proclivity are really the big drivers for us.

I think as far as new stores are concerned that that's going to be a very important consideration in the second half of the year and over the next two or three years, as well. We've done some work on -- some very detailed work with some outside assistance to identify market areas that we're not serving as effectively that have the economic potential to get sales volumes that can drive really good returns for us. And so we've got a little more science now than perhaps we used to behind our store selection process. And I think that's starting -- that'll be starting to kick in in effect in the second half of the year.

Do you have traffic counters in your stores or do you have a pretty good idea how much traffic is down year over year?

Yes. We have a pretty good idea of traffic, and by and large, we're -- our objective is to have traffic counters in pretty much all of our stores. We don't have them in all of them now, but some more stores will have them. I feel it's an important thing for us to be really cognizant of and to be monitoring so that we can understand how much change is due to traffic, how much change is due to closure rates for people who do come in the stores, and how much is related to increases in the size of the purchase order that people carry out. So, those are the factors that we try to pry apart and look at pretty carefully.

And then on the coal operation, this mine where you're going for a permit, assuming you get the permit, when could that mine be placed into production and is it an open-pit mine?

Yes, it's just like all the rest of ours. It's a surface mine, and we would hope in a couple years after getting a permit to have something in place.

And what does CapEx look like for this year versus, say, D&A?

I'm going to have to turn to Ken for CapEx here. I don't have that on the top of my head.

Yes, I think we disclosed that in the K. CapEx year-to-date --

Just the full year probably.

Ken Schilling. I'm sorry. Let me get that for you. Yes, I'm sorry. Full year 2011 forecast is $53.8 million. The lion's share of that, of course, is at NMHG. North American Coal is 15.9, so they're the two largest contributors to the forecast for 2009 working capital. I'm sorry, capital expenditures.

In 2011.

Ken Schilling. In 2011, I'm sorry. In 2010, we were at 26.3, so we're almost double.

We've increased -- we are increasing substantially in comparison to what you would have expected for last year, which was an incredibly low level of CapEx given the environment coming out of the downturn.

I am new to your company, but you've got a rather what I would call disparate group of businesses that probably investors look at differently and value differently. How do you reconcile keeping a holding company structure with so many different businesses in this kind of an environment?

Well, from our point of view, what we're interested in is businesses that we think have good long-term economic prospects and a competitive advantage position. It's important to understand that we have a very small headquarters structure, that we run these businesses as separate businesses with their own P&Ls and their own balance sheets, that our board actually meets individually with each of the businesses and the chief executive of each of those businesses.

So we have an approach to management which really treats the businesses independently and that's the way our financial reporting really works in large measure, as well. So we're quite transparent about the results and we manage separate businesses. It gives balance to our Company. Its original history, early days, was as a coal company; obviously, a basic mining commodity-oriented kind of a business. We run it in a very different way from 30 years ago, but it's still a mineral business.

And then we have consumer goods businesses and we have a capital goods business. So from the point of view of our shareholder base, it provides some considerable diversification and balance. And we run them all separately and treat them as individual businesses and try to do all the things that we believe are necessary for each of them to succeed in their own individual business environments. And that's the way our Company has operated for many years and that's the way we think about it.

Are there opportunities for acquisitions in any of the segments to increase the size and scope of them, gain additional market share, economies of scale or more looking forward on an internal growth basis?

I would say that there are two businesses where probably acquisition is not a given, given the nature of the businesses that we have where it isn't -- it wouldn't accomplish the kinds of objectives that you outline. And those are the coal business and the Kitchen Collection business.

If you look back at our history, you'll see we've tried more than once to expand in the small appliance business. We feel there are economies of scale. And we recently settled some litigation in connection with the failed attempt that we had the last time. And we had an acquisition that we thought we had completed and it didn't work out and eventually we had a settlement which was recorded in the first quarter. And the amount was, I believe, $60 million pre-tax and $39 million after tax is my recollection. So, we tried hard. We thought we'd had not only that but some earlier situations in which we tried to accomplish something similar. So I do think they are there, but we would only entertain such a transaction with the right party and under the right circumstances. And so far, at least, we haven't been able to make that happen.

In the forklift truck business, it's always a possibility. We look at things from time to time. There are economies of scale in that business. We are a global business. We have plants in Europe, the Americas, both North America and South America, and we have plants in several locations in Asia. And so, we're looking at opportunities that may come up and some of them may be by association as well as by formal -- or could be by association as well as in some more formal process. So, there are two businesses where the economy of scale situation that you outline does occur and where, if the right situation came along, we'd certainly take a look at it.

And then lastly, what is the Company's policy with respect to the payment of dividends?

Well, historically, we've had a relatively low payout in terms of long-term earnings. And we have had a generalized approach which has led to increases in dividends at or slightly above inflation rate. We've had a long history of steady dividend increases and that's kind of been the policy that we've had for a good many years.

All right. Thank you very much for your time this morning.

You're welcome.

And there are no further questions in the queue. I'd like to turn the call over to management for closing remarks.

Okay. Thank you, everybody, for joining in. We appreciate your questions and your participation.

If you do have any additional questions, please feel free to give me a call. Again, the phone number is 440-449-9669. Thanks, and have a great day.

And ladies and gentlemen, before you go, the Company would like to remind you that there will be an audio replay of this event available later today. To access the replay, please dial US toll free 888-286-8010 or international 617-801-6888 and enter the replay code 12270673. Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.