NACCO INDUSTRIES, INC. Managing for long-term profit growth 2007 Annual Report NACCO Industries, Inc. at a Glance 2007 Principal Businesses Financial Results NACCO Materials Handling Group (“NMHG”) NMHG Wholesale: Headquarters: Portland, Oregon Revenues: $2.6 billion NMHG Wholesale designs, engineers, manufactures and sells a comprehensive line Operating profit: of lift trucks and aftermarket parts marketed globally under the Hyster® and Yale® $66.3 million brand names. Lift trucks and component parts are manufactured in the United States, Net income: Northern Ireland, Scotland, The Netherlands, China, Italy, Japan, Mexico, the $48.2 million Philippines and Brazil. NMHG Retail: Revenues: $137.8 million NMHG Retail operates a small number of wholly owned dealers, which sell, lease Operating loss: and service Hyster® and Yale® lift trucks, including sales of related service parts. $9.0 million Net loss: $8.9 million NACCO Housewares Group HBB: Hamilton Beach Brands (“HBB”) Revenues: Headquarters: Richmond, Virginia $540.7 million Operating profit: HBB is a leading designer, marketer and distributor of small electric household $40.3 million appliances, as well as commercial products for restaurants, bars and hotels. Net income: $18.4 million Kitchen Collection Kitchen Collection: Headquarters: Chillicothe, Ohio Revenues: Kitchen Collection is a national specialty retailer of kitchenware and gourmet $210.0 million foods operating under the Kitchen Collection® and Le Gourmet Chef® store Operating profit: names in outlet and traditional malls throughout the United States. $0.5 million Net loss: $0.9 million North American Coal (”NACoal“) North American Headquarters: Dallas, Texas Coal: Revenues: North American Coal mines and markets lignite coal primarily as fuel for power $137.1 million generation and provides selected value-added mining services for other natural Operating profit: resources companies in the United States. $43.2 million Net income: North American Coal operates six surface lignite mines. The company also provides $31.0 million dragline mining services operating under the name “North American Mining Company” for independently owned limerock quarries in Florida. NACCO Industries, Inc. is an operating holding company with three principal businesses: lift trucks, housewares and mining. In 2007, total revenues were $3.6 billion and net income was $89.3 million. Market Positions Competitive Advantages Financial Objectives Key Business Programs NACCO Materials Handling • Leading market share positions in the Minimum operating • Manufacturing restructuring Group is a world leader in the Americas and worldwide profit margin target of • Quality initiative lift truck industry with an • Highly recognized Hyster® and Yale® 9 percent • Global supply chain estimated 12 percent market brand names • Global IT excellence share worldwide, including a • Large installed population base of lift • New product development 26 percent market share in the trucks; an estimated 723,000 Hyster® and • New product introductions Americas market. Yale® lift trucks in operation worldwide • Strategic pricing optimization • Highly diverse customer base with more • National and global accounts Lift trucks are distributed than 600 different end-user applications • Dealer structure program through a worldwide network of in more than 900 industries • Aftermarket parts independent Hyster® and Yale® • Comprehensive global product line • NMHG Retail improvements dealers and a limited number • Strong dealer network of wholly owned dealers. • Industry-leading national account coverage in the Americas • Globally integrated operations with significant economies of scale HBB is one of the leading HBB: HBB: HBB: companies in small appliances, • Strong heritage brands with leading Minimum operating • Purchasing and supplier product with strong share positions in market shares profit margin target of cost reduction many of the categories in which • Strong relationships with leading retailers 10 percent • Continuous quality improvement it competes. • Highly professional and experienced • Supply chain optimization management team • Product development process HBB products are primarily • Successful track record of product line • New product introductions distributed through mass expansion and new product innovation • Retailer and channel focus merchants, national discount • Industry-leading working capital • Strategic brand application department stores, warehouse management clubs and other retail sales outlets. Kitchen Collection is the nation’s Kitchen Collection: Kitchen Collection: Kitchen Collection: leading specialty retailer of kitchen • Highly analytical merchandising skills Minimum operating • Corporate expense management and related products in factory and disciplined operating controls profit margin target of • Store expense management outlet malls with 272 stores •Two well-established, complementary 5 percent • Continuous product cost management throughout the United States in retail formats – Kitchen Collection® and • Logistics efficiency 2007. Le Gourmet Chef® • Innovative products and merchandising • Hamilton Beach® brand leverage • Economic Value Income • Outlet mall format initiatives • Traditional mall format initiatives • Internet format initiative North American Coal is the • Lignite coal mines provide steady income Minimum return on total • Employee safety nation’s largest miner of lignite and cash flow before financing activities capital employed of • Contract structure coal and among the ten largest and high return on equity 13 percent and attain • Lignite mining operations coal producers. Lignite coal is • Contracts are structured to minimize positive Economic Value • Limerock dragline mining operations delivered from mines in Texas, exposure to market fluctuations of Income from all existing • Mining and management innovation North Dakota, Louisiana and coal prices consolidated mining • Environmental commitment Mississippi to adjacent or nearby • 2.3 billion tons of lignite coal reserves, of operations and any new • Leveraging NACoal’s lignite coal reserves power plants. which 1.2 billion tons are committed to projects, and maintain or • Direct coal-fired power generation current customers increase profitability of all • Coal gasification • Outstanding operational and technological existing unconsolidated • Coal-based energy production mining skills project mining operations • Utilizing lignite coal beneficiation • Highly efficient heavy equipment utilization technologies • Excellent record of environmental • Contract mining of lignite coal responsibility and employee safety • Contract mining of aggregates Managing for long-term profit growth NACCO Industries, Inc. Table of Contents Selected Financial and Operating Data . 2 Letter to Stockholders. 4 NACCO Materials Handling Group. 10 Hamilton Beach Brands. 20 Kitchen Collection . 28 North American Coal. 34 Supplemental Data . 42 Officers and Directors . 44 Form 10-K . 45 Corporate Information. Inside Back Cover Front Cover: From left to right: The Hyster® Fortis® H155FT pneumatic tire and Yale® Veracitor® GC155VX cushion tire internal combustion engine lift trucks are the newest trucks in NMHG’s 1 to 8 ton ICE lift truck series. The lift trucks have lifting capacities of 6 to 7 tons and can be configured to satisfy multiple customer applications. Environmental Sustainability NACCO Materials Handling Group at NACCO Industries is actively pursuing alternative energy capture, storage and delivery Each of NACCO Industries’ subsidiary companies has programs technologies for use in lift trucks. For and policies in place to reduce the environmental impact of its business. example, the company has developed While many practices have been in place for years, there are a number of prototype hydrogen-powered fuel new initiatives under way that not only benefit the environment but can cell lift trucks, which are successfully help secure new business and reduce operating costs. Each subsidiary being tested at a number of high- will continue to pursue these efforts as NACCO continually strives to be profile customer sites. In addition, the a good corporate citizen. Following are a few examples of Environmental company is actively testing and evaluating several breakthrough Sustainability (“ES”) efforts at each of NACCO’s subsidiaries. battery technologies. This Annual Report is printed using post-consumer waste recycled paper and vegetable-based inks, and conforms to the standards of the Forest Stewardship Counsel. In 2006, NACCO Industries had a good year with In 2008, external factors, including a slowing U.S. strong overall results, although performance was enhanced economy, are likely to affect results significantly. Performance by several one-time events. While many improvement is anticipated to moderate in some areas according to programs began to contribute to profitability, our operational plans, particularly at North American Coal subsidiary companies faced growing challenges from and Hamilton Beach Brands. Each subsidiary company external economic and market factors. will redouble its efforts to manage costs, drive innovation In 2007, performance improved in a number and improve sales and marketing professionalism. of areas, as planned, although the However, in this period of one-time events of 2006, of course, economic uncertainty, the did not recur. In addition, many of In 2007, performance subsidiaries will pursue growth the external factors affecting the improved in a carefully in order