NACCO 1Q Helped by $39 Million Applica Merger Settlement
May 5, 2011
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NACCO Industries, Inc. (Cleveland, OH) reported lower results for its Hamilton Beach small appliance business, but first quarter 2011 corporate income got a boost from a settlement payment of $39 million from Harbinger Capital Partners from its lawsuit over a 2006 failed merger between Hamilton Beach and rival small appliance maker Applica.

$60 Million Settlement Ends Legal Action

Applica and NACCO agreed in July 2006 on a merger between NACCO's electric housewares business, then called Hamilton Beach/Proctor-Silex. The agreement called for NACCO to spin off the housewares unit, which would merge with Applica and operate under the name Hamilton Beach, Inc. Applica backed out of the deal in favor of an offer from Harbinger Capital Partners, which was already a major Applica shareholder. NACCO responded with legal actions, claiming the original agreement had been breached.

NACCO Chairman, President and CEO Alfred M. Rankin, Jr. said at in late-2006 that NACCO "followed a disciplined and focused bidding process" even after "our original merger agreement was breached by Applica."

Harbinger Capital Partners agreed in February 2011, not long before the trial was scheduled to start, to settle the lawsuit and paid $60 million to NACCO.

NACCO 1Q Results

NACCO's first quarter 2011 net income includes the income from the February 2011 payment to NACCO of $60.0 million - $39.0 million after taxes - for the settlement of Applica litigation. Excluding the settlement, adjusted income was $23.8 million for the first quarter of 2011.

Ham Beach parent company NACCO Industries reported consolidated net income of $62.8 million and revenues of $745.5 million for the first quarter of 2011 compared with consolidated net income of $11.7 million and revenues of $557.6 million for the first quarter of 2010.

In addition to Hamilton Beach NACCO's businesses include:
• Materials Handling Group - lift trucks manufacturer
• Kitchen Collection – specialty kitchenware and gourmet foods retail chain
• North American Coal – coal mining

Hamilton Beach 1Q Results

Hamilton Beach had first quarter 2011 net income of $1.0 million on revenues of $100.6 million, compared with net income of $3.4 million for the first quarter of 2010 on revenues of $102.6 million.

Margin compression was the primary factor behind the decline in net income in 1Q 2011. Favorable foreign currency movement partially offset this.

NACCO said that Ham Beach's market, small kitchen appliances, continues to show strength, but the company's target consumer, the mass-market consumer, is still cautious because of ongoing financial concerns. This will result in the market segment remaining soft.

Ham Beach's international and commercial product markets experienced a stronger recovery in 2010 and the first quarter of 2011 and NACCO expects the momentum in these markets to continue throughout 2011.

Hamilton Beach plans to heavily promote its successful Brewstation coffee maker and Stay-or-Go slow cooker lines in 2011. It also expects Melitta-branded beverage appliances, introduced in late 2010, to continue to gain traction.

Innovative product introductions are also planned this year. In the second half of 2011, Hamilton Beach expects to launch The Scoop, a single serve coffee maker, and the Durathon iron product line. These and other product introductions planned for 2011 are expected to affect revenues favorably. As a result, Hamilton Beach expects full year revenues in 2011 to increase compared with 2010.

Overall, full-year 2011 net income is expected to be slightly lower than 2010 due to increased transportation and product costs, particularly in the first half of 2011.

To increase distribution efficiencies, Hamilton Beach is moving its distribution center into a larger facility during the second quarter of 2011. The company expects to incur additional expenses related to this relocation in the second quarter of 2011. Hamilton Beach anticipates that 2011 cash flow before financing activities will be higher than in 2010.

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