UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-9172

NACCO INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		34-1505819 (I.R.S. Employer Identification No.)
5875 Landerbrook Drive, Cleveland, Ohio (Address of Principal Executive Offices)		44124-4017 (Zip Code)

Registrant’s telephone number, including area code: (440) 449-9600

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Class A Common Stock, Par Value $1.00 Per Share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1.00 Per Share
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES þ                    NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES o                    NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES þ                    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ                    Accelerated filer o                    Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

YES o                    NO þ

Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2006 (the last business day of the registrant’s most recently completed second fiscal quarter): $797,055,224

Number of shares of Class A Common Stock outstanding at February 16, 2007: 6,628,655

Number of shares of Class B Common Stock outstanding at February 16, 2007: 1,609,341

Portions of the Company’s Proxy Statement for its 2007 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.

 

 

NACCO INDUSTRIES, INC.
TABLE OF CONTENTS

						PAGE
PART I.
		Item 1.		BUSINESS			1
		Item 1A.		RISK FACTORS			17
		Item 1B.		UNRESOLVED STAFF COMMENTS			24
		Item 2.		PROPERTIES			24
		Item 3.		LEGAL PROCEEDINGS			26
		Item 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			26
PART II.
		Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			30
		Item 6.		SELECTED FINANCIAL DATA			31
		Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			33
		Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			73
		Item 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			74
		Item 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			74
		Item 9A.		CONTROLS AND PROCEDURES			74
		Item 9B.		OTHER INFORMATION			74
PART III.
		Item 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			74
		Item 11.		EXECUTIVE COMPENSATION			75
		Item 12.		SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			75
		Item 13.		CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			75
		Item 14.		PRINCIPAL ACCOUNTANT FEES AND SERVICES			76
PART IV.
		Item 15.		EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			76
SIGNATURES							77
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA							F-1
EXHIBIT INDEX							X-1
EX-10.41
EX-10.67
EX-10.68
EX-10.132
EX-10.133
EX-10.134
EX-10.147
EX-10.175
EX-10.176
EX-10.177
EX-10.178
EX-21
EX-23.1
EX-24.1
EX-24.2
EX-24.3
EX-24.4
EX-24.5
EX-24.6
EX-24.7
EX-24.8
EX-24.9
EX-31.1
EX-31.2
EX-32

PART I

Item 1.		BUSINESS

General

NACCO Industries, Inc. (“NACCO” or the “Company”) is a holding company with three principal businesses: lift trucks, housewares and mining.

(a) NACCO Materials Handling Group. NACCO Materials Handling Group consists of the Company’s wholly owned subsidiary, NMHG Holding Co. (“NMHG”). NMHG designs, engineers, manufactures, sells, services and leases a comprehensive line of lift trucks and aftermarket parts marketed globally under the Hyster^® and Yale^® brand names. NMHG manages its operations as two reportable segments: wholesale manufacturing (“NMHG Wholesale”) and retail distribution (“NMHG Retail”).

(b) NACCO Housewares Group. NACCO Housewares Group (“Housewares”) consists of the Company’s wholly owned subsidiaries: Hamilton Beach/Proctor-Silex, Inc. (“HB/PS”), a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels, and The Kitchen Collection, Inc. (“KCI”), a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection^® and Le Gourmet Chef^® names in outlet and traditional malls throughout the United States. The Housewares Group is managed as two reportable segments: HB/PS and KCI.

(c) North American Coal. The Company’s wholly owned subsidiary, The North American Coal Corporation, and its affiliated coal companies (collectively, “NACoal”), mine and market lignite coal primarily as fuel for power generation and provide selected value-added mining services for other natural resources companies.

Additional information relating to financial and operating data on a segment basis (including NACCO and Other) and by geographic region is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this Form 10-K and in Note 19 to the Consolidated Financial Statements contained in this Form 10-K.

NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a holding company structure for a predecessor corporation organized in 1913. As of January 31, 2007, the Company and its subsidiaries had approximately 10,700 employees, including approximately 900 employees at the Company’s unconsolidated project mining subsidiaries.

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, http://www.nacco.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

Significant Events

In May 2006, NMHG redeemed its 10% Senior Notes that were issued in May 2002 (the “Senior Notes”), which had an aggregate principal amount of $250.0 million outstanding. As a result, NMHG recognized a charge of $17.6 million during 2006 for the redemption premium and write-off of the remaining unamortized original bond issue discount and deferred financing fees related to the Senior Notes.

In 2006, HB/PS continued to execute its strategy to restructure manufacturing activities by reducing operations in its Saltillo, Mexico facility and sourcing more products from China. HB/PS sold the Saltillo facility in April 2006 and is currently leasing back a minor portion of this space to continue operations at Saltillo in a reduced capacity until all remaining manufacturing operations are transferred to third-party suppliers. It is expected that by mid-2007, the Saltillo manufacturing operation will close and the production of blenders and coffeemakers for the Mexican and Latin American markets will be supplied by third-party suppliers.

On August 28, 2006, KCI acquired certain assets of Le Gourmet Chef, Inc. As of January 31, 2007, KCI operated 77 Le Gourmet Chef stores and intends to continue operating 69 of the 77 stores.

In May 2006, NACoal signed an amended contract mining agreement with San Miguel Electric Cooperative, Inc., which was retroactive to January 1, 2006 and extended the contract term to December 31, 2010.

During 2006, NACoal recognized a gain on the sale of assets of $21.8 million, primarily related to the sale of two draglines.

During 2006, as a result of the United States Congress enacting the Coal Industry Retiree Health Benefit Act of 2006 (the “2006 Coal Act”), the Company’s obligation to make premium payments to the United Mine Workers of America Combined Benefit Fund (the “Fund”) will be phased out. As a result of the 2006 Coal Act, Bellaire Corporation’s, a wholly owned non-operating subsidiary of the Company (“Bellaire”), annual premium payments to the Fund will be reduced by 45% for the plan year beginning October 1, 2007, 60% for the plan year beginning October 1, 2008, and 85% for the plan year beginning on October 1, 2009. As of October 1, 2010, Bellaire’s obligation to the Fund will be completely phased out and no further payments to the Fund will be required. As a result of the 2006 Coal Act, Bellaire recognized an extraordinary gain of $12.8 million, net of $6.9 million tax expense in 2006. The 2006 Coal Act did not affect Bellaire’s other obligations.

BUSINESS SEGMENT INFORMATION

A. NACCO Materials Handling Group

1.

NMHG Wholesale

General

NMHG Wholesale designs, engineers, manufactures and sells a comprehensive line of lift trucks and aftermarket parts marketed globally under the Hyster^® and Yale^® brand names.

Manufacturing and Assembly

NMHG Wholesale manufactures components, such as frames, masts and transmissions, and assembles products in the market of sale whenever practical to minimize freight cost and balance currency mix. In some instances, however, it utilizes one worldwide location to manufacture specific components or assemble specific products. Additionally, components and assembled lift trucks are exported to locations when it is advantageous to meet demand in certain markets. NMHG Wholesale operates 13 manufacturing and assembly facilities worldwide with five plants in the Americas, five in Europe and three in Asia-Pacific, including joint venture operations.

Sales of lift trucks represented approximately 86% of NMHG Wholesale’s annual revenues in 2006, 85% in 2005 and 84% in 2004.

Marketing

NMHG Wholesale’s marketing organization is structured in three regional divisions: the Americas; Europe, which includes the Middle East and Africa; and Asia-Pacific. In each region, certain marketing support functions for the Hyster^® and Yale^® brands are combined into a single shared services organization. These activities include sales and service training, information systems support, product launch coordination, specialized sales material development, help desks, order entry, marketing strategy and field service support. Only the specific aspects of NMHG Wholesale’s sales and marketing activities that interact directly with dealers and customers, such as dealer consulting and new lift truck units and aftermarket parts transaction support, are brand specific.

Distribution Network

NMHG Wholesale distributes lift trucks and aftermarket parts through two channels: dealers and a National Accounts program.

     Dealers

          Independent Dealers

The majority of NMHG Wholesale’s dealers are independently owned and operated. In the Americas, NMHG Wholesale had 82 independent Hyster^® dealers and 70 independent Yale^® dealers as of December 31, 2006. In Europe, Hyster^® had 62 independent dealers with locations in 93 countries and Yale^® had 96 independent dealers with locations in 44 countries as of December 31, 2006. Hyster^® had 16 independent dealers in Asia-Pacific as of December 31, 2006. Yale^® was represented by nine independent dealers in Asia-Pacific as of December 31, 2006.

          Owned Dealers

From time to time, NMHG has acquired, at times on an interim basis, certain independent Hyster^®, Yale^® and competitor dealers and rental companies to strengthen or protect Hyster^®‘s and Yale^®‘s presence in select territories. See “2. NMHG Retail” for a description of NMHG’s owned dealers.

     National Accounts

NMHG Wholesale operates a National Accounts program for both Hyster^® and Yale^®. The National Accounts program focuses on large customers with centralized purchasing and geographically dispersed operations in multiple dealer territories. The National Accounts program accounted for 16% of new lift truck unit volume in 2006. The dealer network described above supports the National Accounts program by providing aftermarket parts and service on a local basis. Dealers receive a commission for the support they provide in connection with National Accounts sales and for the preparation and delivery of lift trucks to customer locations. In addition to selling new lift trucks, the National Accounts program markets services, including full maintenance leases and total fleet management.

Customers

NMHG Wholesale’s customer base is diverse and fragmented, including, among others, food distributors, trucking and automotive companies, lumber, metal products, rental companies, building materials and paper suppliers, warehouses, light and heavy manufacturers, retailers, container handling companies and domestic and foreign governmental agencies.

Aftermarket Parts

NMHG Wholesale offers a line of aftermarket parts to service its large installed base of lift trucks currently in use in the industry. NMHG Wholesale offers online technical reference databases specifying the required aftermarket parts to service lift trucks and an aftermarket parts ordering system. Aftermarket parts sales represented approximately 14% of NMHG Wholesale’s annual revenues in 2006, 15% in 2005 and 16% in 2004.

NMHG Wholesale sells Hyster^® and Yale^® branded aftermarket parts to dealers for Hyster^® and Yale^® lift trucks. NMHG Wholesale also sells aftermarket parts under the UNISOURCE™, MULTIQUIP™ and PREMIER™ brands to Hyster^® and Yale^® dealers for the service of competitor lift trucks. NMHG has entered into a contractual relationship with a third-party, multi-brand, aftermarket parts wholesaler in the Americas, Europe and Asia-Pacific whereby orders from NMHG Wholesale dealers for parts for lift trucks are fulfilled by the third-party who then pays NMHG Wholesale a commission.

Financing of Sales

NMHG Wholesale is engaged in a joint venture with General Electric Capital Corporation (“GECC”) to provide dealer and customer financing of new lift trucks in the United States. NMHG owns 20% of the joint venture entity, NMHG Financial Services, Inc. (“NFS”), and receives fees and remarketing profits under a joint venture agreement. This agreement expires on December 31, 2008. NMHG accounts for its ownership of NFS using the equity method of accounting.

In addition, NMHG Wholesale has entered into an operating agreement with GECC under which GECC provides leasing and financing services to Hyster^® and Yale^® dealers and their customers outside of the United States. GECC pays NMHG a referral fee once certain financial thresholds are met. This agreement expires on December 31, 2008.

Under the joint venture agreement with NFS and the operating agreement with GECC, NMHG’s dealers and certain customers are extended credit for the purchase of lift trucks to be placed in the dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, NMHG provides standby recourse obligations, guarantees or repurchase obligations to NFS or to GECC. In substantially all of these transactions, a perfected security interest is maintained in the lift trucks financed, so that in the event of a default, NMHG has the ability to foreclose on the leased property and sell it through the Hyster^® or Yale^® dealer network. Furthermore, NMHG has established reserves for exposures under these agreements.

Backlog

As of December 31, 2006, NMHG Wholesale’s backlog of unfilled orders placed with its manufacturing and assembly operations for new lift trucks was approximately 27,200 units, or $619 million, of which substantially all is expected to be filled during fiscal 2007. This compares to the backlog as of December 31, 2005 of approximately 23,500 units, or $538 million. Backlog represents unfilled lift truck orders placed with NMHG Wholesale’s manufacturing and assembly facilities from dealers, National Accounts customers and contracts with the U.S. government.

Key Suppliers and Raw Material

At times, NMHG Wholesale has experienced significant increases in its materials costs, primarily as a result of increases in global steel, lead, rubber, copper and other commodity prices, due to increased demand and limited supply. While NMHG Wholesale attempts to pass these increased costs along to its customers in the form of higher prices for its products, it may not be able to fully offset the increased costs of steel and other commodities, due to overall market conditions and the lag time involved in implementing price increases for its products. NMHG Wholesale believes there are comparable alternatives available for all suppliers.

Competition

NMHG is one of the leaders in the lift truck industry with respect to market share in the Americas and worldwide. Competition in the lift truck industry is intense and is based primarily on strength and quality of dealers, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product line offering, product performance, product quality and features and the cost of ownership over the life of the lift truck. NMHG competes with several global full-line manufacturers that operate in all major markets.

The lift truck industry also competes with alternative methods of materials handling, including conveyor systems and automated guided vehicle systems.

NMHG’s aftermarket parts offerings compete with parts manufactured by other lift truck manufacturers as well as companies that focus solely on the sale of generic parts.

Patents, Trademarks and Licenses

NMHG Wholesale relies on a combination of trade secret protection, trademarks, nondisclosure agreements and patents to establish and protect its proprietary rights. These intellectual property rights may not have commercial value or may not be sufficiently broad to protect the aspect of NMHG Wholesale’s technology to which they relate or competitors may design around the patents. NMHG Wholesale is not materially dependent upon patents or patent protection; however, as materials handling equipment has become more technologically advanced, NMHG and its competitors have increasingly sought patent protection for inventions incorporated into their products. NMHG Wholesale is the owner of the Hyster^® trademark. NMHG uses the Yale^® trademark on a perpetual royalty-free basis in connection with the manufacture and sale of lift trucks and related components. NMHG believes that the Hyster^® and Yale^® trademarks are material to its business.

2.

NMHG Retail

General

From time to time, NMHG, through NMHG Retail, has acquired, at least on an interim basis, certain independent Hyster^®, Yale^® and competitor dealers and rental companies to strengthen or protect Hyster^®‘s or Yale^®‘s presence in select territories. NMHG’s long-term strategy is to retain or identify strategic buyers for owned dealers that represent “best-in-class” dealers to support the Hyster^® and Yale^® brands.

As of December 31, 2006, NMHG Retail owned two dealerships and rental companies in Europe and nine dealerships and rental companies in Asia-Pacific.

Company Operations

An NMHG Retail dealership is authorized to sell and rent either Hyster^® or Yale^® brand materials handling equipment. These dealerships will typically also sell non-competing allied lines of equipment from other manufacturers pursuant to dealer agreements. Allied equipment includes such items as sweepers, aerial work platforms, personnel carts, rough terrain forklifts and other equipment as well as racking and shelving. The number and type of products available will vary from dealership to dealership. In addition to the outright sale of new and used equipment, dealerships provide equipment for lease and for short- or long-term rental. Dealerships also derive revenue from the sale of parts and service related to equipment sold, leased and/or serviced by them. Service is performed both in-shop and at the customer’s site.

NMHG Retail dealerships are granted a primary geographic territory by NMHG Wholesale in which they operate. NMHG Retail operations are conducted at facilities located in major cities within NMHG Retail’s assigned area of operations.

Competition

The materials handling equipment sales and rental industry is highly dispersed and competitive. NMHG Retail’s competitors include dealers owned by original equipment manufacturers, original equipment manufacturer direct sales efforts, independently owned competitive dealerships and lift truck rental outlets, independent parts operations, independent service shops and, to a lesser extent, independent Hyster^® or Yale^® dealers.

The lift truck industry also competes with alternative methods of materials handling, including conveyor systems and automated guided vehicle systems.

Customers

NMHG Retail’s customer base is highly diversified and ranges from Fortune 100 companies to small businesses in a substantial number of manufacturing and service industries. NMHG Retail’s customer base varies widely by facility and is determined by several factors, including the equipment mix and marketing focus of the particular facility and the business composition of the local economy.

Financing of Sales

NMHG Retail dealerships have a preferred relationship with GECC. NMHG Retail dealerships may obtain wholesale and retail financing for the sale and leasing of equipment through GECC. This affords these dealerships a wide variety of financial products at competitive rates. Financing through GECC is further described in “1. NMHG Wholesale — Financing of Sales” above.

3.

NMHG — General

Cyclical Nature of Lift Truck Business

NMHG’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks reflect the capital investment decisions of NMHG’s customers, which depend to a certain extent on the general level of economic activity in the various industries that the lift truck customers serve. During economic downturns, customers tend to delay new lift truck purchases.

Research and Development

NMHG’s research and development capability is organized around four major engineering centers, all coordinated on a global basis from NMHG’s Portland, Oregon headquarters. Comparable products are designed for each brand concurrently and generally each center is focused on the global requirements for a single product line. NMHG’s counterbalanced development center, which has global design responsibility for several classes of lift trucks primarily used in industrial applications, is located in Portland, Oregon. NMHG’s big truck development center is located in Nijmegen, The Netherlands, adjacent to a dedicated global big truck assembly facility. Big trucks are primarily used in handling shipping containers and in specialized heavy lifting applications. Warehouse trucks, which are primarily used in distribution applications, are designed based on regional differences in stacking and storage practices. NMHG designs warehouse equipment for sale in the Americas market in Greenville, North Carolina, adjacent to the Americas assembly facility for warehouse equipment. NMHG designs warehouse equipment for the European market in Masate, Italy adjacent to its assembly facilities for warehouse equipment. In addition, during 2005, NMHG opened an engineering office in India to support its global drafting and design activities.

NMHG’s engineering centers utilize a three-dimensional CAD/CAM system and are electronically connected with one another, with all of NMHG’s manufacturing and assembly facilities and with some suppliers. This allows for collaboration in technical engineering designs and collaboration with suppliers. Additionally, NMHG solicits customer feedback throughout the design phase to improve product development efforts. NMHG invested $52.4 million, $50.0 million and $50.8 million on product design and development activities in 2006, 2005 and 2004, respectively.

Sumitomo-NACCO Joint Venture

NMHG has a 50% ownership interest in Sumitomo-NACCO Materials Handling Group, Ltd. (“SN”), a limited liability company that was formed in 1970 to manufacture and distribute lift trucks in Japan. Sumitomo Heavy Industries, Inc. owns the remaining 50% interest in SN. Each shareholder of SN is entitled to appoint directors representing 50% of the vote of SN’s board of directors. All matters related to policies and programs of operation, manufacturing and sales activities require mutual agreement between NMHG and Sumitomo Heavy Industries, Inc. prior to a vote of SN’s board of directors. As a result, NMHG accounts for its ownership in SN using the equity method of accounting. NMHG purchases Hyster^® and Yale^® branded lift trucks and related components and aftermarket parts from SN under normal trade terms for sale outside of Japan. NMHG also contracts with SN for engineering design services on a cost plus basis and charges SN for technology used by SN but developed by NMHG.

Employees

As of January 31, 2007, NMHG had approximately 7,000 employees, approximately 6,100 of whom were employed by the wholesale operations and approximately 900 of whom were employed by the retail operations. A majority of the employees in the Danville, Illinois parts depot operations (approximately 130 employees) are unionized, as are tool room employees (approximately 15 employees) located in Portland, Oregon. NMHG’s contracts with the Danville and Portland unions expire in June 2009 and November 2007, respectively. Employees at the facilities in Berea, Kentucky; Sulligent, Alabama; and Greenville, North Carolina are not represented by unions. In Mexico, shop employees are unionized.

In Europe, some employees in the Craigavon, Northern Ireland; Irvine, Scotland; Masate, Italy; and Modena, Italy facilities are unionized. Employees in the Nijmegen, The Netherlands facility are not represented by unions, but the employees have organized a works council, as required by Dutch law, which performs a consultative role on employment matters. All of the European employees are part of a European Works Council that performs a consultative role on business and employment matters.

In Asia-Pacific, 13 locations have certified industrial agreements for hourly employees and five of the 13 locations have unions for their employees.

NMHG believes its current labor relations with both union and non-union employees are generally satisfactory. However, there can be no assurances that NMHG will be able to successfully renegotiate its union contracts without work stoppages or on acceptable terms. A prolonged work stoppage at a unionized facility could have a material adverse effect on NMHG’s business and results of operations.

Environmental Matters

NMHG’s manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances. NMHG Retail’s operations are particularly affected by laws and regulations relating to the disposal of cleaning solvents and wastewater and the use of and disposal of petroleum products from underground and above-ground storage tanks. NMHG’s policies stress compliance and NMHG believes it is currently in substantial compliance with existing environmental laws. If NMHG fails to comply with these laws or its environmental permits, then it could incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require NMHG to incur significant additional expense or restrict operations. Based on current information, NMHG does not expect compliance with environmental requirements to have a material adverse effect on NMHG’s financial condition or results of operations.

In addition, NMHG’s products may be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhaust. Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark ignited engines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require NMHG and other lift truck manufacturers to incur costs to modify designs and manufacturing processes and to perform additional testing and reporting. While there can be no assurance, NMHG believes that the impact of the additional expenditures to comply with these requirements will not have a material adverse effect on its business.

NMHG is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired. NMHG has also been named as a potentially responsible party for cleanup costs under the so-called Superfund law at several third-party sites where NMHG (or its predecessors) disposed of wastes in the past. Under the Superfund law and often under similar state laws, the entire cost of cleanup can be imposed on any one of the statutorily liable parties, without regard to fault. While NMHG is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on NMHG’s financial conditions and results of operations.

In connection with any acquisition made by NMHG, NMHG could, under some circumstances, be held financially liable for or suffer other adverse effects due to environmental violations or contamination caused by prior owners of businesses NMHG has acquired. In addition, under some of the agreements through which NMHG has sold businesses or assets, NMHG has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. These liabilities may not arise, if at all, until years later.

Government and Trade Regulations

As a result of certain rulings by the World Trade Organization (“WTO”) with respect to tax benefits granted to U.S. exporters under U.S. tax laws, a portion of NMHG’s products exported into European Union countries during 2004 were subject to an additional duty. The additional duty was 5% ad valorem in March 2004 and increased 1% each month thereafter up to a maximum of 17%. Effective January 1, 2005, the council of the European Union suspended the additional customs duties on imports of certain NMHG products originating in the United States, subject to a determination by the WTO whether certain aspects of the American Jobs Creation Act of 2004 (the “Jobs Act”) are consistent with the U.S.’s WTO obligation. In May 2006, the U.S. Congress voted to repeal certain tax benefits for U.S. companies contained in the Jobs Act. As a result, the European Union repealed the regulation which dealt with the additional customs duties and the additional duties to be applied to lift trucks imported into Europe from the United States were eliminated.

NMHG’s business in the past has been affected by trade disputes between the United States and Europe. In the future, to the extent NMHG is affected by trade disputes and increased tariffs are levied on its goods, its results of operations may be materially adversely affected.

B. NACCO Housewares Group

General

Housewares consists of two reportable segments: HB/PS and KCI. HB/PS is a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels. HB/PS’ products are marketed primarily to retail merchants and wholesale distributors.

KCI is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection^® and Le Gourmet Chef^® store names in outlet and traditional malls throughout the United States. KCI operated 280 retail stores as of December 31, 2006. KCI stores are located primarily in factory outlet malls and feature merchandise of highly recognizable name-brand manufacturers, including Hamilton Beach^® and Proctor Silex^®. Le Gourmet Chef^® stores are located primarily in outlet and traditional malls throughout the United States and feature gourmet foods and home entertainment products, as well as brand name electric and non-electric kitchen items.

Sales and Marketing

HB/PS designs, markets and distributes a wide range of small electric household appliances, including motor-driven appliances such as blenders, mixers, can openers and food processors and heat-driven appliances such as coffeemakers, irons, toasters, slow

cookers, indoor grills and toaster ovens. HB/PS also markets a line of air purifiers and odor eliminators. In addition, HB/PS designs, markets and distributes commercial products for restaurants, bars and hotels. HB/PS generally markets its “better” and “best” segments under the Hamilton Beach^® brand and uses the Proctor Silex^® brand for the “good” and “better” segments. HB/PS markets premium products under the Hamilton Beach^® eclectrics^® brand and its opening price point products under the Traditions by Proctor Silex^® brand. HB/PS also markets air purifiers, allergen reducers and home odor elimination products under the TrueAir^® brand. In addition, HB/PS supplies Wal-Mart with GE-brand kitchen electric and garment-care appliances under Wal-Mart’s license agreement with General Electric Company. In addition, HB/PS supplies Target with certain Michael Graves-brand kitchen appliances under Target’s store-wide Michael Graves line. HB/PS also licenses the Febreze^® brand from The Procter & Gamble Company for use in HB/PS’ odor elimination line. HB/PS markets its products primarily in North America, but also sells products in Latin America, Asia-Pacific and Europe. Sales are generated predominantly by a network of inside sales employees to mass merchandisers, national department stores, variety store chains, drug store chains, specialty home retailers and other retail outlets. Sales to one of HB/PS’ customers, Wal-Mart, exceeded 10% of Housewares’ revenues in each of the last three years and the loss of this customer would be material to Housewares. HB/PS’ five largest customers accounted for approximately 57%, 58% and 59% of net sales for the years ended December 31, 2006, 2005 and 2004, respectively. Sales promotion activities are primarily focused on cooperative advertising. In 2006, HB/PS also promoted its most innovative products through the use of direct response television advertising. In 2006, HB/PS licensed certain of its brands to various licensees for water coolers, microwaves and water treatment products.

Because of the seasonal nature of the markets for small electric appliances, HB/PS’ management believes that backlog is not a meaningful indicator of performance and is not a significant indicator of annual sales. As of December 31, 2006, backlog for HB/PS was approximately $9.0 million. This compares with the backlog as of December 31, 2005 of approximately $6.4 million. This backlog represents customer orders, which may be canceled at any time prior to shipment.

HB/PS’ warranty program to the consumer consists generally of a limited warranty lasting for varying periods of up to three years for electric appliances, with the majority of products having a warranty of one year or less. Under its warranty program, HB/PS may repair or replace, at its option, those products found to contain manufacturing defects.

Revenues and operating profit for Housewares are traditionally greater in the second half of the year as sales of small electric appliances to retailers and consumers increase significantly with the fall holiday selling season. Because of the seasonality of purchases of its products, HB/PS incurs substantial short-term debt to finance inventories and accounts receivable in anticipation of the fall holiday selling season.

Product Design and Development

Housewares spent $7.4 million in 2006, $6.9 million in 2005 and $7.2 million in 2004 on product design and development activities. All of these expenditures were made by HB/PS.

Key Suppliers and Raw Material

The principal raw materials used to manufacture and distribute HB/PS’ products are plastic, glass, steel, copper, aluminum and packaging materials. HB/PS believes that adequate quantities of raw materials are available from various suppliers.

In 2006, HB/PS purchased approximately 90% of its finished products from suppliers in China. HB/PS believes that there are adequate third-party supplier choices available that can meet HB/PS’ quality standards.

Competition

The small electric appliance industry does not have onerous entry barriers. As a result, Housewares competes with many small manufacturers and distributors of housewares products. Based on publicly available information about the industry, HB/PS believes it is one of the largest full-line distributors and marketers of small electric household appliances in North America based on key product categories.

As retailers generally purchase a limited selection of small electric appliances, HB/PS competes with other suppliers for retail shelf space. Since 1996, HB/PS has also conducted consumer advertising for the Hamilton Beach^® brand. Since 2002, this advertising has focused on the Hamilton Beach^® and TrueAir^® brands. HB/PS believes that the principal areas of competition with respect to its products are product design and innovation, quality, price, product features, merchandising, promotion and warranty.

Since the outlet channel of the retail industry is approaching maturity, the management of KCI continues to explore alternate areas of growth and diversification. For the past several years, KCI has been testing alternative store formats both within the outlet industry and in the more traditional retail environments, including the enclosed mall store format and the large store format. Because not all of these formats have met KCI’s rigorous financial performance standards, KCI continues to explore alternate channels of distribution, including distribution through the internet. In addition, KCI is exploring alternatives for Le Gourmet Chef^® stores in outlet malls, traditional malls and distribution through the internet.

Government Regulation

HB/PS is subject to numerous federal and state health, safety and environmental regulations. HB/PS’ management believes that the impact of expenditures to comply with such laws will not have a material adverse effect on HB/PS.

As a marketer and distributor of consumer products, HB/PS is subject to the Consumer Products Safety Act and the Federal Hazardous Substances Act, which empower the U.S. Consumer Product Safety Commission (“CPSC”) to seek to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require HB/PS to repair, replace or refund the purchase price of one or more of HB/PS’ products, or HB/PS may voluntarily do so.

Throughout the world, electrical appliances are subject to various mandatory and voluntary standards, including requirements in some jurisdictions that products be listed by Underwriters’ Laboratories, Inc. (“UL”) or other similar recognized laboratories. HB/PS also uses the ETL SEMKO division of Intertek for certification and testing of compliance with UL standards, as well as other nation- and industry-specific standards. HB/PS endeavors to have HB/PS’ products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.

Patents, Trademarks, Copyrights and Licenses

HB/PS holds patents and trademarks registered in the United States and foreign countries for various products. HB/PS believes that its business is not dependent upon any individual patent, trademark, copyright or license, but that the Hamilton Beach^® and Proctor Silex^® trademarks are material to its business.

Employees

As of January 31, 2007, Housewares’ work force consisted of approximately 2,300 employees, most of whom are not represented by unions. In Canada, approximately 17 hourly employees at HB/PS’ Picton, Ontario distribution facility are unionized. These employees are represented by an employee association which performs a consultative role on employment matters. The February 2005 collective bargaining agreement for HB/PS’ Saltillo, Mexico manufacturing facility has been extended through April 30, 2007. Under this agreement, a new wage agreement with similar terms was effective in January 2006. As of January 31, 2007, there were approximately 174 employees subject to the terms of the Saltillo agreement. HB/PS and KCI believe their current labor relations with both union and non-union employees are satisfactory. However, there can be no assurances that HB/PS will be able to successfully renegotiate its union contracts without work stoppages or on acceptable terms. A prolonged work stoppage at a unionized facility could have a material adverse effect on Housewares’ business and results of operations.

C. North American Coal

General

NACoal is engaged in the mining and marketing of lignite coal primarily as fuel for power generation and provides selected value-added mining services for other natural resources companies. NACoal mines lignite coal through both wholly owned unconsolidated project mining subsidiaries pursuant to long-term, cost plus a profit per ton contracts with utility customers, as well as consolidated coal mining operations. At the unconsolidated project mining subsidiaries, the utility customers have provided, arranged and/or guaranteed the financing of the development and operation of the mines. There is no recourse to NACCO or NACoal for the financing of these unconsolidated project mining subsidiary mines. Conversely, NACoal has arranged and provided the necessary financing for the consolidated coal mining operations, except for the San Miguel Lignite Mining Operations. NACoal also provides dragline mining services for limerock quarries in Florida and earns royalty income from the lease of various coal and other natural resources properties.

At December 31, 2006, NACoal’s operating mines consisted both of mines where the reserves were acquired and developed by NACoal, as well as mines where reserves were owned by the customers of the mines. It is currently contemplated that the reported reserves will be mined within the term of the leases for each of the mines that NACoal operates and controls the reserves. In the future, if any of the leases are projected to expire before mining operations can commence, it is currently expected that each such lease would be amended to extend the term or new leases would be negotiated. Under these terms, NACoal expects that lignite coal mined pursuant to these leases will be available to meet its production requirements.

Because each coal mining operation has a contract to provide lignite coal to its customer, a significant portion of NACoal’s revenue is derived from a single source, which exceeds 10% of NACoal’s revenues. The loss of any lignite coal customer would be material to NACoal.

Sales, Marketing and Operations

The principal lignite coal customers of NACoal are electric utilities and an independent power provider.

The total production by mine for the last three years and the weighted average prices per ton sold/delivered for the last three years are as follows:

     Total production by mine (in millions of tons) ⁽¹⁾

		2006				2005				2004
Unconsolidated Project Mines
Freedom			15.2				15.1				15.2
Falkirk			8.2				7.7				7.6
Sabine			4.0				4.6				4.3
Consolidated Mines Operations
San Miguel			3.6				3.3				3.1
Red River			0.8				0.6				0.5
Red Hills			3.8				3.6				3.6
Total lignite tons produced			35.6				34.9				34.3
Lignite price per ton sold/delivered		$	12.14			$	11.42			$	10.93

The contracts under which the project mining subsidiaries were organized provide that, under certain conditions of default, the customer(s) involved may elect to acquire the assets (subject to the liabilities) or the capital stock of the subsidiary for an amount effectively equal to book value. NACoal does not know of any conditions of default that currently exist. In one case, the customer may elect to acquire the stock of the subsidiary upon a specified period of notice without reference to default, in exchange for certain payments on coal thereafter mined. NACoal does not know of any current intention of any customer to acquire the stock of a subsidiary or terminate a contract for convenience.

The location, mine type, reserve data, coal quality characteristics, customer, sales tonnage and contract expiration date for the mines operated by NACoal in 2006 were as follows:

LIGNITE COAL MINING OPERATIONS ON AN “AS RECEIVED” BASIS

						2006
						Proven and Probable Reserves (1)(2)																								2005
						Committed Under																								Total Committed
						Contract				Uncommitted				Total				Sales Tonnage												and Uncommitted				Sales Tonnage				Contract
Mine/Reserve		Type of Mine				(Millions of Tons)												(Millions)				Owned (%)				Leased (%)				(Millions of Tons)				(Millions)				Expires
Unconsolidated Project Mining Subsidiaries
Freedom Mine (3)		Surface Lignite					484.6				—				484.6				15.3				3	%			97	%			553.0				15.0				2012	(4)
Falkirk Mine (3)		Surface Lignite					470.9				—				470.9				8.2				1	%			99	%			473.1				7.7				2045
Sabine Mine (3)		Surface Lignite						(5)				(5)			—				3.9					(5)				(5)			—				4.5				2020
Consolidated Mining Operations
San Miguel Lignite Mining Operations		Surface Lignite						(5)				(5)			—				3.6					(5)				(5)			—				3.3				2010
Red River Mine		Surface Lignite					4.1				53.2				57.3				0.8				93	%			7	%			58.1				0.6				2011
Red Hills Mine		Surface Lignite					135.4				117.9				253.3				3.6				25	%			75	%			264.4				3.6				2032
Total Developed							1,095.0				171.1				1,266.1				35.4												1,348.6				34.7
Undeveloped Mining Operations
North Dakota			—				—				562.7				562.7				—				0	%			100	%			526.7				—				—
Texas			—				13.0				196.4				209.4				—				41	%			59	%			209.4				—				—
Eastern (6)			—					(6)			47.9				47.9				—				95	%			5	%			47.4				—				—
Mississippi			—				—				142.2				142.2				—				0	%			100	%			143.4				—				—
Total Undeveloped							13.0				949.2				962.2																926.9
Total Developed/Undeveloped							1,108.0				1,120.3				2,228.3																2,275.5

						Coal Formation or				Average Seam				Average				Average Coal Quality (As received)
Mine/Reserve		Type of Mine				Coal Seam(s)				Thickness (feet)				Depth (feet)				BTUs/lb				Sulfur (%)				Ash (%)				Moisture (%)
Unconsolidated Project Mining Subsidiaries
Freedom Mine (3)		Surface Lignite				Beulah-Zap Seams					18				130				6,767				0.8	%			9	%			36	%
Falkirk Mine (3)		Surface Lignite				Hagel A&B, Tavis Creek Seams					8				50				6,200				0.6	%			11	%			38	%
Sabine Mine (3)		Surface Lignite					(5)					(5)				(5)				(5)				(5)				(5)				(5)
Consolidated Mining Operations
San Miguel Lignite Mining Operations		Surface Lignite					(5)					(5)				(5)				(5)				(5)				(5)				(5)
Red River Mine		Surface Lignite				Chemard Lake Lignite Lentil Seams					7				70				6,722				0.7	%			14	%			33	%
Red Hills Mine		Surface Lignite				C, D, E, F, G, H Seams					4				150				5,200				0.6	%			14	%			43	%
Undeveloped Mining Operations
North Dakota			—			Fort Union Formation					13				130				6,500				0.8	%			8	%			38	%
Texas			—			Wilcox Formation					8				120				6,800				1.0	%			16	%			30	%
Eastern (6)			—			Freeport & Kittanning					4				400				12,070				3.3	%			12	%			3	%
Mississippi			—			Wilcox Formation					12				130				5,200				0.6	%			13	%			44	%

Unconsolidated Project Mining Subsidiaries

Freedom Mine — The Coteau Properties Company

The Freedom Mine, operated by The Coteau Properties Company (“Coteau”), is located approximately 90 miles northwest of Bismarck, North Dakota. The main entrance to the Freedom Mine is accessed by means of a paved road and is located on County Road 15. Coteau holds 395 leases granting the right to mine approximately 35,498 acres of coal interests and the right to utilize approximately 30,771 acres of surface interests. In addition, Coteau owns in fee 30,796 acres of surface interests and 4,561 acres of coal interests. Substantially all of the leases held by Coteau were acquired in the early 1970s with terms totaling 40 years. Many of these leases were amended or replaced with new leases which extend the lease terms for a period sufficient to meet Coteau’s contractual production requirements.

The Freedom Mine generally produces over 15 million tons of lignite coal annually. The mine started delivering coal in 1983. All production from the mine is sold to Dakota Coal Company, a wholly owned subsidiary of Basin Electric Power Cooperative. Dakota Coal Company then sells the coal to Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station, all of which are affiliates of Basin Electric Power Cooperative.

The reserves are located in Mercer County, North Dakota, starting approximately two miles north of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 100 miles northwest of the permit area. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand, silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.

Falkirk Mine — The Falkirk Mining Company

The Falkirk Mine, operated by The Falkirk Mining Company (“Falkirk”), is located approximately 50 miles north of Bismarck, North Dakota on a paved access road off U.S. Highway 83. Falkirk holds 330 leases granting the right to mine approximately 50,731 acres of coal interests and the right to utilize approximately 37,678 acres of surface interests. In addition, Falkirk owns in fee 26,427 acres of surface interests and 850 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the early 1970s with terms totaling 40 years, many of which can be or have been further extended by the continuation of mining operations.

The Falkirk Mine generally produces between 7.5 million to 8.5 million tons of lignite coal annually for the Coal Creek Station, an electric power generating station. All production from the mine is used by Coal Creek Station. The mine started delivering coal in 1978.

The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of the town of Washburn, North Dakota to four miles north of the town of Underwood, North Dakota. Structurally, the area is located on an intercratonic basin containing a thick sequence of sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel Butte Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor Formation. The Sentinel Butte Formation conformably overlies the Bullion Creek Formation. The general stratigraphic sequence in the upland portions of the reserve area (Sentinel Butte Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay, lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a repeating sequence of silty to sand clays with generally thin lignite beds.

Sabine Mine — The Sabine Mining Company

The Sabine Mine, operated by The Sabine Mining Company (“Sabine” and together with Falkirk and Coteau, the “unconsolidated project mining subsidiaries”), is located approximately 150 miles east of Dallas, Texas on FM 968. The entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or option to acquire any of the reserves at the Sabine Mine. Southwestern Electric Power Company controls all of the reserves within the Sabine Mine.

The Sabine Mine has two active pits generally producing between 3.9 and 4.6 million tons of lignite coal annually based upon Southwestern Electric Power Company’s demand for its Henry W. Pirkey Plant and other contractual requirements. The mine started delivering coal in 1985.

Other Mines

San Miguel Lignite Mining Operations — The North American Coal Corporation

The San Miguel Lignite Mining Operations (“San Miguel”), operated by NACoal, is located approximately 60 miles south of San Antonio, Texas. Access to the mine is by means of an unpaved road from FM 338. San Miguel has no title, claim, lease or option to acquire any of the reserves at the San Miguel Lignite Mine.

NACoal has operated San Miguel since July 1, 1997 under a Contract Mining Agreement with San Miguel Electric Power Cooperative, Inc. (“San Miguel Electric”). Prior to July 1, 1997, Morrison Knudsen operated the mine under a similar contract mining arrangement. Since the development of the project in the late 1970’s, San Miguel Electric has owned the reserves and mine facilities and held all the permits and authorizations necessary to operate the power generating station and the adjacent lignite mine. The mine started delivering coal in 1980.

San Miguel generally produces between 3.0 million and 3.6 million tons of coal annually. Mine staff and workforce utilize an office building and a maintenance facility that includes a parts warehouse. Roads and drainage control facilities have been built to access the lignite deposit and control runoff. Walking draglines owned by San Miguel Electric are used to uncover the lignite seam in each pit. Front-end loaders and other mining equipment are used to load belly dump coal haulers and end-dump trucks are used to deliver the lignite coal to the power plant. The same complement of equipment is used to reclaim topsoil and subsoil materials. Dozers are used to grade the land once the lignite coal has been removed.

Red River Mine — Red River Mining Company

The Red River Mine, operated by Red River Mining Company (“Red River”), is located approximately 35 miles south of Shreveport, Louisiana. Access to the mine is by means of an unpaved road located one mile west of Highway 84 on Parish Road 604. Red River holds 18 leases granting the right to mine approximately 927 acres of coal interests and the right to utilize approximately 991 acres of surface interests. In addition, Red River owns in fee approximately 4,832 acres of surface interests and 4,792 acres of coal interests.

The Red River Mine generally produces between 550,000 and 1 million tons of lignite annually as a supplemental fuel source based upon the demand from the Dolet Hills Power Station. Prior to 2006, substantially all production from the mine has been delivered to the Dolet Hills Power Station near Mansfield, Louisiana. During 2006, 205,000 tons were delivered to other plants in Louisiana. The mine started delivering coal in 1989.

Two distinct types of land forms are present at the Red River Mine. First is the alluvial material formed by the low lying floodplain of the Red River. This material is very sandy and requires extensive dewatering prior to mining. Below the alluvial lies the Wilcox Group, which is part of the Eocene Series. The outcropping Wilcox is composed predominantly of non-marine sediments deposited on a broad flat plain.

Red Hills Mine — Mississippi Lignite Mining Company

The Red Hills Mine, operated by Mississippi Lignite Mining Company (“MLMC”), is located approximately 120 miles north of Jackson, Mississippi. The entrance to the mine is by means of a paved road located approximately one mile west of Highway 9. MLMC holds 166 leases granting the right to mine approximately 9,282 acres of coal interests and the right to utilize approximately 9,353 acres of surface interests. In addition, MLMC owns in fee 1,863 acres of surface interests and 1,684 acres

of coal interests. Substantially all of the leases held by MLMC were acquired during the mid 1970s to the early 1980s with terms totaling 50 years.

The Red Hills Mine generally produces between 3.5 and 3.8 million tons of coal annually for the Red Hills Power Plant. The mine started delivering coal in October 2000.

The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that outcrops/subcrops along the margin of the Mississippi embayment. The potentially exploitable tertiary lignites in Mississippi are found in the Wilcox Group. The outcropping Wilcox is composed predominately of non-marine sediments deposited on a broad flat plain.

Florida Dragline Operations — The North American Coal Corporation

NACoal’s Florida Dragline Operations operate draglines to mine limerock at the following quarries in Florida pursuant to mining services agreements with the quarry owners:

						Year NACoal
Quarry Name		Location		Quarry Owner		Started Dragline Operations
White Rock Quarry		Miami		WRQ		1995
Krome Quarry		Miami		Rinker		2003
Alico Quarry		Ft. Meyers		Rinker		2004
FEC Quarry		Miami		Rinker		2005
Pennsuco Quarry		Miami		Tarmac		2005

WRQ, Rinker and Tarmac control all of the limerock reserves within their respective quarries. WRQ and Rinker perform drilling programs only occasionally for the purpose of redefining the bottom of the limerock bed.

Access to the White Rock Quarry is by means of a paved road from 122nd Avenue, while access to the Krome Quarry is by means of a paved road from Krome Avenue and access to Pennsuco Quarry is by means of a paved road from NW 121^st Way. Access to the FEC Quarry is by means of a paved road from NW 118^th Avenue and access to the Alico Quarry is by means of a paved road from Alico Road. Florida Dragline Operations have no title, claim, lease or option to acquire any of the reserves at the White Rock Quarry, the FEC Quarry, the Krome Quarry, the Pennsuco Quarry or the Alico Quarry.

North American Coal Royalty Company

No operating mines currently exist on the undeveloped reserves in North Dakota, Texas, Louisiana and Mississippi. NACoal Royalty Company does receive certain royalty payments for production or advance royalty payments for reserves located in Ohio, Pennsylvania, North Dakota, Louisiana and Texas.

General Information about the Mines

Leases. The leases held by Coteau, Falkirk, and MLMC have a variety of continuation provisions, but generally they permit the leases to be continued beyond their fixed terms. Substantially all of the leases held by Red River contain a ten-year term with continuation provisions, subject to applicable law, for as long thereafter as coal is being produced from the leased premises. Under the terms of the leases held by these companies, each respective company expects that coal mined pursuant to its leases will be available to meet its production requirements.

No Previous Operators. There were no previous operators of the Freedom Mine, Falkirk Mine, Sabine Mine, Red River Mine or Red Hills Mine.

Exploration and Development. The Freedom Mine, Falkirk Mine, Sabine Mine, San Miguel, Red Hills Mine and Red River Mine are well past the exploration stage and are in production. Additional pit development is underway at each mine. Drilling programs are routinely conducted annually for the purpose of refining guidance related to ongoing operations. For example, at the Red Hills Mine, the lignite coal reserve has been defined by a drilling program that is designed to provide 500-foot spaced drill holes for areas anticipated to be mined within six years of the current pit. Drilling beyond the six-year horizon ranges from 1,000 to 2,000-foot centers. Drilling is conducted every other year to stay current with the advance of mining operations.

Facilities and Equipment. The facilities and equipment for each of the mines are maintained to allow for safe efficient operation. The equipment is well maintained, in good physical condition and is either updated or replaced periodically with the latest models or upgrades available to keep up with modern technology. As equipment wears out, the mines evaluate what replacement option will be the most cost efficient, including the evaluation of both new and used equipment, and proceed with that replacement. The majority of electrical power for the draglines, shovels, coal crushers, coal conveyors and facilities generally is provided by the utility customer for the applicable mine. Electrical power for the Sabine facilities is provided by Upshur Rural Electric Co-op. Electrical power for the Sabine draglines is provided by the Pirkey Power Plant. The remainder of the equipment generally is powered by diesel or gasoline. The total cost of the property, plant and equipment, net of applicable accumulated amortization and depreciation as of December 31, 2006, for each of the mines is set forth in the chart below.

		Total Historical Cost of Mine
		Property, Plant and Equipment
		(excluding Coal Lands, Real Estate
		and Construction in Progress), Net of
		Applicable Accumulated
Mine		Amortization and Depreciation
		(in millions)
Unconsolidated Project Mine Subsidiaries
Freedom Mine — The Coteau Properties Company		$	53.7
Falkirk Mine — The Falkirk Mining Company		$	58.9
Sabine Mine — The Sabine Mining Company		$	58.2
Consolidated Mining Operations
San Miguel Lignite Mining Operations — The North American Coal Corporation		$	0.6
Red River Mine — Red River Mining Company		$	4.6
Red Hills Mine — Mississippi Lignite Mining Company		$	40.7
Florida Dragline Operations — The North American Coal Corporation		$	23.9

Predominantly, all of San Miguel’s machinery, equipment, automobiles, trucks, office furniture and computers are rented under operating leases, except for the two draglines which are owned by NACoal’s customer. A substantial portion of MLMC’s machinery, trucks and equipment is rented under operating leases. Two Florida draglines are also rented under operating leases. All such draglines were purchased used and have been updated with the latest technology.

Government Regulation

NACoal’s coal mining operations and dragline mining services are subject to various federal, state and local laws and regulations on matters such as employee health and safety, and certain environmental laws relating to, among others, the reclamation and restoration of properties after mining operations, air pollution, water pollution, the disposal of wastes and the effects on groundwater. In addition, the electric utility industry is subject to extensive regulation regarding the environmental impact of its power generation activities that could affect demand for coal from NACoal’s coal mining operations.

Numerous governmental permits and approvals are required for coal mining operations. NACoal or one of its subsidiaries holds the necessary permits at all of NACoal’s coal mining operations except San Miguel, where NACoal’s customer holds the permits. The Company believes, based upon present information provided to it by NACoal’s customer, that NACoal’s customer has all environmental permits necessary for NACoal to operate San Miguel; however, the Company cannot be certain that NACoal’s customer will be able to obtain and/or maintain all such permits in the future.

At the coal mining operations where NACoal holds the permits, NACoal is required to prepare and present to federal, state or local governmental authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment and public and employee health and safety.

The limerock quarries where NACoal provides dragline mining services are owned and operated by NACoal’s customers. All environmental permits for the limerock quarries are held by NACoal’s customers. Based upon present information provided to the Company by NACoal’s customers, the Company believes that NACoal’s customers have all environmental permits necessary for NACoal to provide dragline mining services at the quarries and for such customers to operate the quarries. A pending federal district court decision may affect NACoal’s customers’ limerock mining permits in South Florida. NACoal believes that its customers intend to vigorously challenge and appeal any unfavorable decision of the federal district court. The Company cannot be certain that NACoal’s customers will be able to obtain and/or maintain all necessary permits in the future.

Some laws, as discussed below, place many requirements on NACoal’s coal mining operations and the limerock quarries where NACoal provides dragline mining services. Federal and state regulations require regular monitoring of NACoal’s operations to ensure compliance.

Mine Health and Safety Laws

The Federal Coal Mine Safety and Health Act of 1977 imposes safety and health standards on all coal, metal and nonmetal mining operations. Regulations are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations and other matters. The Federal Mine Safety and Health Administration enforces compliance with these federal laws and regulations.

Environmental Laws

NACoal’s coal mining operations are subject to various federal environmental laws, including:

	•		the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”);
	•		the Clean Air Act, including amendments to that act in 1990 (the “Clean Air Act”);
	•		the Clean Water Act of 1972 (the “Clean Water Act”);

	•		the Comprehensive Environmental Response, Compensation and Liability Act; and
	•		the Resource Conservation and Recovery Act.

In addition to these federal environmental laws, various states have enacted environmental laws that provide for higher levels of environmental compliance than similar federal laws. These environmental laws require reporting, permitting and/or approval of many aspects of coal mining operations. Both federal and state inspectors regularly visit mines to enforce compliance. NACoal has ongoing compliance and permitting programs to ensure compliance with such environmental laws.

     Surface Mining Control and Reclamation Act

SMCRA establishes mining, environmental protection and reclamation standards for all aspects of surface coal mining operations. Where state regulatory agencies have adopted federal mining programs under the SMCRA, the state becomes the primary regulatory authority. All of the states where NACoal has active coal mining operations have achieved primary control of enforcement through federal authorization.

Coal mine operators must obtain SMCRA permits and permit renewals for coal mining operations from the regulatory agency. These SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, protection of the hydrologic balance, surface drainage control, mine drainage and mine discharge control and treatment, and revegetation.

Although NACoal’s permits have stated expiration dates, SMCRA provides for a right of successive renewal. The cost of obtaining surface mining permits can vary widely depending on the quantity and type of information that must be provided to obtain the permits; however, the cost of obtaining a permit is usually between $500,000 and $3,000,000, and the cost of obtaining a permit renewal is usually between $15,000 and $50,000.

The Abandoned Mine Land Fund, which is part of SMCRA, imposes a tax on all current lignite coal mining operations. The proceeds are used principally to reclaim mine lands closed prior to 1977. In addition, the Abandoned Mine Land Fund also makes transfers annually to the United Mine Workers of America Combined Benefit Fund (the “Fund”), which provides health care benefits to retired coal miners who are beneficiaries of the Fund. The fee is currently $0.10 per ton on lignite coal sold.

SMCRA establishes operational, reclamation and closure standards for surface coal mines. The Company accrues for the costs of current mine disturbance and final mine closure, including the cost of treating mine water discharges, where necessary. These obligations are unfunded.

SMCRA stipulates compliance with many other major environmental programs. These programs include the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation and Liability Act, superfund and employee right-to-know provisions. The U.S. Army Corps of Engineers regulates activities affecting navigable waters, and the U.S. Bureau of Alcohol, Tobacco and Firearms regulates the use of explosives for blasting.

The Company does not believe there are any substantial matters that pose a risk to NACoal’s ability to maintain its existing mining permits or hinder its ability to acquire future mining permits.

     Clean Air Act

The Clean Air Act and the corresponding state laws that regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations may occur through Clean Air Act permitting requirements and/or emission control requirements relating to particulate matter, such as fugitive dust. Indirect impacts on coal mining operations occur through regulation of the air emissions of sulfur dioxide, nitrogen oxides, mercury, particulates and other compounds emitted by coal-fired power plants. Any reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business, financial condition and results of operations.

In July 1997, the Environmental Protection Agency (the “EPA”) adopted new, more stringent National Ambient Air Quality Standards for particulate matter that may require some states to change their existing implementation plans. Because coal mining operations and coal-fired power plants emit particulate matter, NACoal’s coal mining operations and utility customers may be directly affected when the revisions to the National Ambient Air Quality Standards are implemented by the states. State and federal regulations relating to implementation of the new air quality standards may restrict NACoal’s ability to develop new mines or could require it to modify its existing operations. The extent of the potential direct impact of the new air quality standards on the coal industry will depend on the policies and control strategies associated with the state implementation process under the Clean Air Act but could have a material adverse effect on the Company’s financial condition and the results of operations.

The Clean Air Act also imposes limits on sulfur dioxide emissions from coal-fired power plants. The affected electricity generators have been able to meet these requirements by, among other things, switching to lower sulfur fuels, installing pollution control devices such as flue gas desulfurization systems, which are known as “scrubbers,” reducing power generating levels or purchasing sulfur dioxide emission allowances.

The cost of installing scrubbers is significant, and emission allowances may become more expensive as their availability declines. Switching to other fuels may require expensive modification of existing plants. The extent to which NACoal’s electric utility customers switch to lower sulfur coal or other low-sulfur fuel could materially affect the Company if NACoal cannot

offset the cost of sulfur removal by lowering the costs of delivery of its coal on an energy equivalent basis. The Company cannot accurately predict the effect of these provisions of the Clean Air Act amendments on the Company in future years.

In May 2005, the EPA published the Clean Air Mercury Rule (“CAMR”) which regulates the emission of mercury from coal-fired power plants. CAMR is a two phase cap and trade regulation with phase 1 being implemented in 2010 and phase 2 in 2018. Affected electrical generating units will be able to meet these regulations by, among other things, switching to lower mercury fuels, installing mercury control devices, or purchasing mercury emissions allowances. Mercury control devices are just beginning to be demonstrated on a commercial scale; therefore, their efficiency and cost of operation is uncertain at this time.

The cost of controlling mercury emissions will be significant and emission allowances may become more expensive as their availability declines. Switching to other fuels may require expensive modifications to existing plants. The extent to which NACoal’s electric utility customers switch to lower mercury coal or other low-mercury fuel could materially affect the Company if NACoal cannot offset the cost of mercury removal by lowering the costs of delivery of its coal on an energy equivalent basis. The Company cannot accurately predict the effect these provisions of the Clean Air Act amendments will have on the Company in future years.

In addition, Congress and several states are considering legislation to further control air emissions of pollutants from electric generating facilities and other large emitters. To the extent these new regulations affect NACoal’s customers, these regulations could have a material adverse effect on the Company’s business, financial condition and results of operations.

In October 2003, twelve states, two cities and 14 environmental groups filed petitions in the United States Court of Appeals for the District of Columbia, challenging the EPA’s decision denying a rulemaking petition to regulate carbon dioxide as a criteria pollutant under the Clean Air Act. If these petitioners are successful in obtaining a court order requiring the EPA to set (or the EPA agrees to set) emission limitations for carbon dioxide and/or lower emission limitations for sulfur dioxide and particulate matter, the demand for coal may decrease. Congress has considered proposed legislation requiring mandatory limits on carbon dioxide emissions. To date, these proposals have not been successful but future proposed legislation may be supported by a majority of the Congress. If legislation is passed that limits carbon dioxide emissions, the demand for coal may decrease.

The Clean Air Act sets a national goal for the prevention of any future, and the remediation of any existing, impairment of visibility in over 150 national parks and wildlife areas across the country. These requirements could affect the amount of coal supplied to NACoal’s customers if they decide to switch to other sources of fuel to lower emission of sulfur dioxides and nitrogen oxides.

NACoal has obtained all necessary permits under the Clean Air Act at all of its coal mining operations where it is responsible for permitting.

The EPA promulgated the Clean Air Interstate Rule (“CAIR”) in May 2005. This rule requires reduction of nitrogen oxides and sulfur dioxides in 29 eastern States including Texas, Louisiana, and Mississippi. CAIR requires more reductions in the emissions from power plants than the acid rain program, which is the current emission control regulation. Affected power plants will be required to install emission control devices, switch to lower emission fuels, or purchase emission allowances.

The EPA promulgated the Clean Air Visibility Rule (“CAVR”) in June 2005. This rule requires power plants not covered by CAIR to install Best Available Retrofit Technology equipment to control emissions that cause haze and reduce visibility. The emissions include sulfur dioxide, nitrogen oxides and fine particulate matter.

The cost of controlling nitrogen oxides and sulfur dioxide emissions will be significant and emission allowances may become more expensive as their availability declines. Switching to other fuels may require expensive modifications to existing plants. The extent to which NACoal’s electric utility customers switch to lower emitting coal or other lower emitting fuel could materially affect the Company if NACoal cannot offset the cost of removal by lowering the costs of delivery of its coal on an energy equivalent basis. The Company cannot accurately predict the effect these provisions of the Clean Air Act amendments will have on the Company in future years.

Other so-called multi-pollutant bills that could regulate additional air pollutants, including carbon dioxide, have been proposed. While the details of all of these proposed initiatives vary, there appears to be a movement towards increased regulation of power plant air pollutants. If any of these initiatives were enacted into law, power plants could choose to shift away from coal as a fuel source to meet these requirements.

Because coal mining operations emit particulate matter and other pollutants, NACoal’s mining operations may be affected directly when the states revise their implementation plans to comply with the stricter standards for particulate matter and ozone. State and federal regulations relating to the new standards may restrict NACoal’s ability to develop new mines or could require it to modify its existing operations. The extent of the potential direct impact of the new standards on the coal industry will depend on the policies and control strategies associated with the state implementation process, but could increase NACoal’s cost of doing business and adversely affect the Company’s financial condition and results of operations.

     Clean Water Act

The Clean Water Act affects coal mining operations by establishing in-stream water quality standards and treatment standards for waste water discharge. Permits requiring regular monitoring, reporting and performance standards govern the discharge of pollutants into water.

Federal and state regulations establish standards for water quality. These regulations prohibit the diminution of water quality. Waters discharged from coal mines will be required to meet these standards. These federal and state requirements could require more costly water treatment and could adversely affect NACoal’s coal production.

The Company believes NACoal has obtained all permits required under the Clean Water Act and corresponding state laws and is in compliance with such permits.

Bellaire Corporation, a wholly owned non-operating subsidiary of the Company (“Bellaire”), is treating mine water drainage from coal refuse piles associated with two former underground coal mines in Ohio and one former underground coal mine in Pennsylvania, and is treating mine water from a former underground coal mine in Pennsylvania. Bellaire anticipates that it will need to continue these activities indefinitely and has accrued a liability of $11.9 million as of December 31, 2006 related to these matters.

In connection with Bellaire’s normal permit renewal with the Pennsylvania Department of Environmental Protection, it was notified during 2004 that in order to obtain renewal of the permit it would be required to establish a mine water treatment trust. Bellaire is currently negotiating the terms of the timing and amount of funds necessary to establish this trust. It is also expected that once this trust is fully funded, the income from the trust would then be utilized to fund the future cost of treatment of mine water drainage from the idled mining operations. A liability for treating this mine water drainage has been previously accrued as required by Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.”

     Resource Conservation and Recovery Act

The Resource Conservation and Recovery Act affects coal mining operations by establishing requirements for the treatment, storage and disposal of wastes, including hazardous wastes. Coal mine wastes, such as overburden and coal cleaning wastes, currently are exempted from hazardous waste management.

     Comprehensive Environmental Response, Compensation and Liability Act

The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws create liabilities for the investigation and remediation of releases of hazardous substances into the environment and for damages to natural resources. The Company also must comply with reporting requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.

From time to time, the Company has been the subject of administrative proceedings, litigation and investigations relating to environmental matters.

The Company’s subsidiary, Sabine, has been named as a potentially responsible party for cleanup costs under the so-called Superfund law at a third-party site where Sabine disposed of nonhazardous waste oil in the past. The Company believes that Sabine’s liability will be de minimis.

The magnitude of the liability and the cost of complying with environmental laws cannot be predicted with certainty due to the lack of specific information available with respect to many sites, the potential for new or changed laws and regulations and for the development of new remediation technologies and the uncertainty regarding the timing of work with respect to particular sites. As a result, the Company may incur material liabilities or costs related to environmental matters in the future, and such environmental liabilities or costs could adversely affect the Company’s results of operations and financial condition. In addition, there can be no assurance that changes in laws or regulations would not affect the manner in which NACoal is required to conduct its operations.

Competition

The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric power and nuclear power. Among the factors that affect competition are the price and availability of oil and natural gas, environmental considerations, the time and expenditures required to develop new energy sources, the cost of transportation, the cost of compliance with governmental regulation of operations, the impact of federal and state energy policies and the current trend toward deregulation of energy markets. The ability of NACoal to market and develop its reserves will depend upon the interaction of these factors.

Based on industry information, NACoal believes that it was one of the ten largest coal producers in the United States in 2006 based on total coal tons produced.

Employees

As of January 31, 2007, NACoal had approximately 1,400 employees, including approximately 900 employees at the unconsolidated project mining subsidiaries. NACoal believes its current labor relations with employees are satisfactory.

Item 1A.		RISK FACTORS

NMHG

The cost of raw materials used by NMHG’s products has and may continue to fluctuate, which could materially reduce the Company’s profitability.

At times, NMHG Wholesale has experienced significant increases in its materials costs, primarily as a result of increases in global steel, lead, rubber, copper and other commodity prices, as a result of increased demand and limited supply. NMHG manufactures products that include raw materials that consist of steel, rubber, castings and counterweights. NMHG also purchases parts provided by suppliers that are manufactured from castings and steel. The cost of these parts is impacted by the same economic conditions that impact the cost of the parts that NMHG manufactures. The cost to manufacture lift trucks and related service parts has been and will continue to be affected by fluctuations in prices for these raw materials. If costs of these raw materials increase, the Company’s profitability could be reduced.

The pricing and costs of NMHG’s products have been and may continue to be impacted by foreign currency fluctuations, which could materially increase the Company’s costs, result in material exchange losses and materially negatively affect operating margins.

Because NMHG conducts transactions in various foreign currencies, including the euro, the Australian dollar, the Japanese yen and the British pound sterling, its lift truck pricing is subject to the effects of fluctuations in the value of these foreign currencies and fluctuations in the related currency exchange rates. As a result, NMHG’s sales have historically been affected by, and may continue to be affected by, these fluctuations. In addition, exchange rate movements between currencies in which NMHG purchases materials and components and manufactures certain of its products and the currencies in which NMHG sells those products is expected to continue to result in material exchange losses and materially negatively affect operating margins. Furthermore, NMHG’s hedging contracts may not offset current risks from changes in currency exchange rates.

NMHG depends on a limited number of suppliers for specific critical components.

NMHG depends on a limited number of suppliers for some of its critical components, including diesel and gasoline engines and cast-iron counterweights used to counterbalance some lift trucks. Some of these critical components are imported and subject to regulation, such as inspection by the U.S. Department of Commerce. The Company’s results of operations could be adversely affected if NMHG is unable to obtain these critical components, or if the costs of these critical components were to increase significantly, due to regulatory compliance or otherwise, and NMHG was unable to pass the cost increases on to its customers.

NMHG’s lift truck business is cyclical. Any downturn in the general economy could result in significant decreases in the Company’s revenue and profitability and an inability to sustain or grow the business.

NMHG’s lift truck business historically has been cyclical. Fluctuations in the rate of orders for lift trucks reflect the capital investment decisions of NMHG’s customers, which depend to a certain extent on the general level of economic activity in the various industries that the lift truck customers serve. During economic downturns, customers tend to delay new lift truck purchases. Consequently, NMHG has experienced, and in the future will experience, significant fluctuations in its revenues and net income. If there is a downturn in the general economy, or in the industries served by NMHG’s lift truck customers, the Company’s revenue and profitability could decrease significantly and the Company may not be able to sustain or grow the business.

If the capital goods market worsens, the cost saving efforts implemented by NMHG may not be sufficient to achieve the benefits NMHG expects.

Since 2000, NMHG has been implementing a series of restructuring programs, which included labor and overhead reductions and the restructuring of NMHG’s manufacturing facilities and owned dealers, to improve profits and margins. If the economy or the capital goods market declines, NMHG’s revenues could decline. If revenues are lower than expected, these programs implemented at NMHG may not achieve the benefits NMHG expects. Furthermore, NMHG may be forced to take additional cost savings steps that could result in additional charges that materially adversely affect its ability to compete or implement its current business strategies.

Introduction of new products will require funding at current or higher levels, which could materially adversely affect the Company’s results of operations.

Product development and product introduction costs related to the new product development programs are expected to continue at current high levels. The product development and product introduction expenses could be higher than projected and such higher costs would have an adverse impact on future results of operations.

If NMHG’s current cost reduction and efficiency programs, including the introduction of new products, does not prove effective, the Company’s revenues, profitability and market share could be significantly reduced.

Changes in the timing of implementation of its current cost reduction, efficiency and new product programs may result in a delay in the expected recognition of future costs and realization of future benefits. As such, if future industry demand levels are lower than historical industry demand cycles would indicate, the actual annual cost savings could be lower than expected. If NMHG is unable to successfully implement these programs, the Company’s revenues, profitability and market share could be significantly reduced.

If cost saving efforts implemented for NMHG’s owned dealers are not effective, the Company’s profitability could be materially reduced.

As of December 31, 2006, NMHG had two dealerships and rental companies in Europe and nine dealerships and rental companies in Asia-Pacific. To improve the profitability of owned dealers, NMHG has engaged in restructuring activities with respect to these dealerships and rental companies. If the restructuring activities for the owned dealers and rental companies are not effective, the Company’s profitability could be materially reduced.

The failure of NMHG to compete effectively within its industry could result in a significant decrease in the Company’s revenues and profitability.

NMHG experiences intense competition in the sale of lift trucks and aftermarket parts. Competition in the lift truck industry is based primarily on strength and quality of dealers, brand loyalty, customer service, new lift truck sales prices, availability of products and aftermarket parts, comprehensive product line offering, product performance, product quality and features and the cost of ownership over the life of the lift truck. NMHG competes with several global full-line manufacturers that operate in all major markets. These manufacturers may have greater financial resources and less debt than NMHG, which may enable them to commit larger amounts of capital in response to changing market conditions, and lower costs of manufacturing. If NMHG fails to compete effectively, the Company’s revenues and profitability could be significantly reduced.

NMHG relies primarily on its network of independent dealers to sell its lift trucks and aftermarket parts and has no direct control over sales by those dealers to customers. Ineffective or poor performance by these independent dealers could result in a significant decrease in the Company’s revenues and profitability and an inability by NMHG to sustain or grow the business.

NMHG relies primarily on independent dealers for sales of its lift trucks and aftermarket parts. Sales of NMHG’s products are therefore subject to the quality and effectiveness of the dealers, who are generally not subject to NMHG’s direct control. As a result, ineffective or poorly performing dealers could result in a significant decrease in the Company’s revenues and profitability and NMHG may not be able to sustain or grow its business.

NMHG‘s actual liabilities relating to pending lawsuits may exceed its expectations.

NMHG is a defendant in pending lawsuits involving, among other things, product liability claims. NMHG cannot be sure that it will succeed in defending these claims that judgments will not be rendered against NMHG with respect to any or all of these proceedings or that reserves set aside or insurance policies will be adequate to cover any such judgments. The Company could incur a charge to earnings if reserves prove to be inadequate or the average cost per claim or the number of claims exceed estimates, which could have a material adverse effect on the Company’s results of operations and liquidity for the period in which the charge is taken and any judgment or settlement amount is paid.

NMHG has guaranteed, or is subject to repurchase or recourse obligations with respect to, financing arrangements of some of its customers.

Through arrangements with GECC and others, dealers and other customers are provided financing for new lift trucks in the United States and in major countries of the world outside of the United States. Through these arrangements, NMHG’s dealers and certain customers are extended credit for the purchase of lift trucks to be placed in the dealer’s floor plan inventory or the financing of lift trucks that are sold or leased to customers. For some of these arrangements, NMHG provides standby recourse obligations, guarantees or repurchase obligations such that it would become obligated in the event of default by the dealer or customer. Total amounts subject to these types of obligations at December 31, 2006 were $231.9 million. Generally, NMHG maintains a perfected security interest in the assets financed such that, in the event that it becomes obligated under the terms of the standby recourse obligations, guarantees or repurchase obligations, it may take title to the assets financed. NMHG cannot be certain, however, that the security interest will equal or exceed the amount of the standby recourse obligations, guarantees or repurchase obligations. In addition, NMHG cannot be certain that losses under the terms of the standby recourse obligations, guarantees or repurchase obligations will not exceed the reserves that it has set aside in its consolidated financial statements. The Company could incur a charge to earnings if its reserves prove to be inadequate, which could have a material adverse effect on the Company’s results of operations and liquidity for the period in which the charge is taken.

NMHG is subject to risks relating to its foreign operations.

Foreign operations represent a significant portion of NMHG’s business. NMHG expects revenue from foreign markets to continue to represent a significant portion of NMHG’s total revenue. NMHG owns or leases manufacturing facilities in Brazil, Italy, Mexico, The Netherlands, Northern Ireland and Scotland, and owns interests in joint ventures with facilities in China, Japan and the Philippines. It also sells domestically produced products to foreign customers and sells foreign produced products to domestic customers. NMHG’s foreign operations are subject to additional risks, which include:

•		potential political, economic and social instability in the foreign countries in which NMHG operates;
•		currency risks, see “The pricing and costs of NMHG’s products have been and may continue to be impacted by foreign currency fluctuations, which could materially increase the Company’s costs, result in material exchange losses and materially negatively affect operating margins;”
•		imposition of or increases in currency exchange controls;
•		potential inflation in the applicable foreign economies;
•		imposition of or increases in import duties and other tariffs on NMHG’s products;

•		imposition of or increases in foreign taxation of earnings and withholding on payments received by NMHG from its subsidiaries;
•		regulatory changes affecting international operations; and
•		stringent labor regulations.

Part of the strategy to expand NMHG’s worldwide market share and decrease costs is strengthening its international distribution network and sourcing basic components in foreign countries. Implementation of this strategy may increase the impact of the risks described above and there can be no assurance that such risks will not have an adverse effect on the Company’s revenues, profitability or market share.

NMHG‘s actual liabilities relating to environmental matters may exceed its expectations.

NMHG’s manufacturing operations are subject to laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous substances. NMHG Retail’s operations are particularly affected by laws and regulations relating to the disposal of cleaning solvents and wastewater and the use of and disposal of petroleum products from underground and above-ground storage tanks. If NMHG fails to comply with these laws or its environmental permits, then it could incur substantial costs, including cleanup costs, fines and civil and criminal sanctions. In addition, future changes to environmental laws could require NMHG to incur significant additional expense or restrict operations.

In addition, NMHG’s products may be subject to laws and regulations relating to the protection of the environment, including those governing vehicle exhausts. Regulatory agencies in the United States and Europe have issued or proposed various regulations and directives designed to reduce emissions from spark ignited engines and diesel engines used in off-road vehicles, such as industrial lift trucks. These regulations require NMHG and other lift truck manufacturers to incur costs to modify designs and manufacturing processes and to perform additional testing and reporting.

NMHG is investigating or remediating historical contamination at some current and former sites caused by its operations or those of businesses it acquired. NMHG has also been named as a potentially responsible party for cleanup costs under the so-called Superfund law at several third-party sites where NMHG (or its predecessors) disposed of wastes in the past. Under the Superfund law and often under similar state laws, the entire cost of cleanup can be imposed on any one of the statutorily liable parties, without regard to fault. While NMHG is not currently aware that any material outstanding claims or obligations exist with regard to these sites, the discovery of additional contamination at these or other sites could result in significant cleanup costs that could have a material adverse effect on NMHG’s financial conditions and results of operations.

In connection with any acquisition made by NMHG, NMHG could, under some circumstances, be held financially liable for or suffer other adverse effects due to environmental violations or contamination caused by prior owners of businesses NMHG has acquired. In addition, under some of the agreements through which NMHG has sold businesses or assets, NMHG has retained responsibility for certain contingent environmental liabilities arising from pre-closing operations. These liabilities may not arise, if at all, until years later and could require NMHG to incur significant additional expenses, which could materially adversely affect the Company’s results of operations and financial condition.

Housewares

HB/PS depends on third-party suppliers for almost all of the manufacturing of all of its products, which subjects the Company to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.

HB/PS currently obtains almost all of its products from unaffiliated third-party suppliers located primarily in China. HB/PS plans to discontinue remaining manufacturing operations by mid-2007, which will make HB/PS dependent on third-party suppliers for the manufacturing of all of its products. HB/PS’ ability to select reliable suppliers who provide timely deliveries of quality products will impact its success in meeting customer demand. Any inability of HB/PS’ suppliers to timely deliver products or any unanticipated changes in suppliers could be disruptive and costly to the Company. Any significant failure by HB/PS to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on the Company’s profitability.

Because HB/PS’ suppliers are primarily based in China, international operations subject the Company to additional risks including, among others:

	•		currency fluctuations;
	•		labor unrest;
	•		potential political, economic and social instability;
	•		lack of developed infrastructure;
	•		restrictions on transfers of funds;
	•		import and export duties and quotas;
	•		changes in domestic and international customs and tariffs;
	•		uncertainties involving the costs to transport products;
	•		long distance shipping routes dependent upon a small group of shipping and rail carriers;
	•		unexpected changes in regulatory environments;
	•		regulatory issues involved in dealing with foreign suppliers and in exporting and importing products;
	•		difficulty in complying with a variety of foreign laws;
	•		difficulty in obtaining distribution and support; and

•

potentially adverse tax consequences.

The foregoing factors could have a material adverse effect on HB/PS’ ability to maintain or increase the supply of products, which may result in material increases in expenses and decreases in revenues.

Increases in costs of products may materially reduce the Company’s profitability.

Factors that are largely beyond the Company’s control, such as movements in commodity prices for the raw materials needed by suppliers of HB/PS’ products, may affect the cost of products, and HB/PS may not be able to pass those costs on to its customers. As an example, HB/PS’ products require a substantial amount of plastic. Because the primary resource used in plastic is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum. In recent years, the prices of petroleum, as well as steel, aluminum and copper have increased significantly. These price increases may materially reduce the Company’s profitability.

HB/PS is dependent on key customers and the loss of, or significant decline in business from, one or more of its key customers could materially reduce the Company’s revenues and profitability and the Company’s ability to sustain or grow its business.

HB/PS relies on several key customers. In each of the last three years, sales by HB/PS to Wal-Mart Stores, Inc. exceeded 10% of HB/PS’ revenues. HB/PS’ five largest customers accounted for approximately 57%, 58% and 59% of net sales for the years ended December 31, 2006, 2005 and 2004, respectively. Although HB/PS has long-established relationships with many customers, they do not have any long-term supply contracts and purchases are generally made using individual purchase orders. A loss of any key customer could result in significant decreases in revenues and profitability and an inability to sustain or grow the business.

HB/PS must receive a continuous flow of new orders from their large, high-volume retail customers; however, they may be unable to continually meet the needs of those customers. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could impair the Company’s ability to sustain or grow its business.

As a result of dependence on HB/PS’ key customers, HB/PS could experience a material adverse effect on its revenues and profitability if any of the following were to occur:

	•		the insolvency or bankruptcy of any key customer;
	•		a declining market in which customers materially reduce orders or demand reduced prices; or
	•		a strike or work stoppage at a key customer facility, which could affect both their suppliers and customers.

In recent years, some major retailers, including Kmart, have filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. If HB/PS were to lose, or experience a significant decline in business from, any major retail customer or if other major retail customers were to go bankrupt, HB/PS might be unable to find alternate distribution sources.

The increasing concentration of HB/PS’ small electric household appliance sales among a few retailers and the trend toward private label brands could materially reduce revenues and profitability.

With the growing trend towards the concentration of HB/PS’ small electric household appliance sales among a few retailers, HB/PS is increasingly dependent upon fewer customers whose bargaining strength is growing as a result of this concentration. HB/PS sells a substantial quantity of products to mass merchandisers, national department stores, variety store chains, drug store chains, specialty home retailers and other retail outlets. These retailers generally purchase a limited selection of small electric household appliances. As a result, HB/PS competes for retail shelf space with its competitors. In addition, certain of HB/PS’ larger customers use their own private label brands on household appliances that compete directly with some of HB/PS’ products. As the retailers in the small electric household appliance industry become more concentrated, competition for sales to these retailers may increase, which could materially reduce the Company’s revenues and profitability.

The small electric household and commercial appliance industry is consolidating, which could reduce HB/PS’ ability to successfully secure product placements at key customers and limit its ability to sustain a cost competitive position in the industry.

Over the past several years, the small electric household and commercial appliance industry has undergone substantial consolidation, and further consolidation is likely. As a result of this consolidation, the small electric household and commercial appliance industry primarily consists of a limited number of large distributors. To the extent that HB/PS does not continue to be a major participant in the small electric household and commercial appliance industry, its ability to compete effectively with these larger distributors could be negatively impacted. As a result, this condition could reduce HB/PS’ ability to successfully secure product placements at key customers and limit the ability to sustain a cost competitive position in the industry.

HB/PS’ inability to compete effectively with competitors in its industry, including large established companies with greater resources, could result in lost market share and decreased revenues.

The small electric household and commercial appliance industry does not have onerous entry barriers. As a result, HB/PS competes with many small manufacturers and distributors of housewares products. Additional competitors may also enter this market and cause competition to intensify. For example, some of HB/PS’ customers have expressed interest in sourcing, or expanding the extent of sourcing, small electric household and commercial appliances directly from manufacturers in Asia. The Company believes that competition is based upon several factors, including product design and innovation, quality, price, product features, merchandising, promotion and warranty. If HB/PS fails to compete effectively with these manufacturers and distributors, it could lose market share and experience a decrease in revenues, which would adversely affect the Company’s results of operations.

HB/PS also competes with established companies, a number of which have substantially greater facilities, personnel, financial and other resources. In addition, HB/PS competes with retail customers, who use their own private label brands, and importers and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete with HB/PS. As a result of this competition, HB/PS could lose market share and revenues.

The market for Housewares’ products is highly seasonal and dependent on consumer spending, which could result in significant variations in the Company’s revenues and profitability.

Sales of Housewares’ products are related to consumer spending. Any downturn in the general economy or a shift in consumer spending away from small electric household appliances would adversely affect its business. In addition, the market for small electric household appliances is highly seasonal in nature. Housewares often recognizes a substantial portion of its sales in the last half of the year. Accordingly, quarter-to-quarter comparisons of past operating results of HB/PS are meaningful, if at all, only when comparing equivalent time periods. Any economic downturn, decrease in consumer spending or a shift in consumer spending away from small electric household appliances could significantly reduce revenues and profitability.

Housewares’ business is sensitive to the strength of the U.S. retail market and weakness in this market could adversely affect its business.

The strength of the retail economy in the United States has a significant impact on Housewares’ performance. Weakness in consumer confidence and poor financial performance by mass merchandisers, warehouse clubs, department stores or any of Housewares’ other customers would result in lost revenues. A general slowdown in the retail sector, as happened in 2002 and 2003, would result in additional pricing and marketing support pressures on Housewares.

North American Coal

Termination of long-term mining sales contracts could materially reduce the Company’s revenues and profitability.

Substantially all of NACoal’s revenues and profits are derived from long-term mining sales contracts. The contracts for NACoal’s project mining subsidiaries permit the customer under some conditions of default to acquire the assets or stock of the project mining subsidiary for an amount roughly equal to book value. In one case, the customer may elect to acquire the stock of the subsidiary upon a specified period of prior notice, for any reason, in exchange for payments to NACoal on coal mined at that facility in the future. If any of NACoal’s long-term mining contracts were terminated, revenues and profitability could be materially reduced to the extent that NACoal is unable to find alternative customers at the same level of profitability.

NACoal’s unconsolidated project mining subsidiaries are subject to risks created by changes in customer demand, inflationary adjustments and tax rates.

The contracts with the unconsolidated project mining subsidiaries’ utility customers allow each mine to sell lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton. Unconsolidated project mining subsidiary customers pay on a cost-plus basis only for the coal that they consume and use. As a result, reduced coal usage by customers, including, but not limited to, unanticipated weather conditions and scheduled and unscheduled power plant outages, could have an adverse impact on the Company’s results of operations. Because of the contractual price formulas for the sale of coal and mining services by these unconsolidated project mining subsidiaries, the profitability of these operations is also subject to fluctuations in inflationary adjustments (or lack thereof) that can impact the per ton profit or management fee paid for the coal and taxes applicable to NACoal’s income on that coal.

NACoal’s other mining operations, including its consolidated mining operations, are subject to risks created by its capital investment in the mines, the costs of mining the coal and the dragline mining equipment, in addition to risks created by changes in customer demand, inflationary adjustments and tax rates.

The consolidated mining operations are comprised of San Miguel, Red River, MLMC, dragline mining services, royalties from mineral leases to other mining companies and other activities. The profitability of these consolidated mining operations is subject to the risk of loss of its investment in these mining operations, as well as increases in the cost of mining the coal. Except at San Miguel, the costs of the consolidated mining operations are not passed on to its customers. As such, increased costs at these operations would materially reduce NACoal’s profitability. NACoal’s operations are also subject to customer demand, including but not limited to fluctuations in demand due to unanticipated weather conditions, the emergence of unidentified adverse mining conditions, power plant outages, inflationary adjustments and tax risks described above with

respect to its unconsolidated project mining subsidiaries. These factors could materially reduce NACoal’s profitability.

Mining operations are vulnerable to weather and other conditions that are beyond NACoal’s control.

Many conditions beyond NACoal’s control can decrease the delivery, and therefore the use, of lignite coal to NACoal’s customers. These conditions include weather, the emergence of unidentified adverse mining conditions, unexpected maintenance problems and increased costs of replacement parts which could significantly reduce the Company’s revenues and profitability.

Government regulations could impose costly requirements on NACoal.

The coal mining industry is subject to regulation by federal, state and local authorities on matters concerning the health and safety of employees, land use, permit and licensing requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining, the discharge of materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Legislation mandating certain benefits for current and retired coal miners also affects the industry. Mining operations require numerous governmental permits and approvals. NACoal is required to prepare and present to federal, state or local authorities data pertaining to the impact that production of coal may have upon the environment. Compliance with these requirements may be costly and time-consuming.

New legislation and/or regulations and orders may materially adversely affect NACoal’s mining operations or its cost structure. New legislation, including proposals related to environmental protection that would further regulate and tax the coal industry, may also require NACoal or its customers to change operations significantly or incur increased costs. Possible limitations on carbon emissions and requirements for a specific mix of fuel sources for energy generation methods may reduce potential coal demand. All of these factors could significantly reduce the Company’s revenues and profitability.

NACoal is subject to federal and state mining regulations, which place a burden on it.

Federal and state statutes require NACoal to restore mine property in accordance with specified standards and an approved reclamation plan, and require that NACoal obtain and periodically renew permits for mining operations. Regulations require NACoal to incur the cost of reclaiming current mine disturbance. Although the Company believes that appropriate accruals have been recorded for all expected reclamation and other costs associated with closed mines, future profitability would be adversely affected if accruals for these costs are later determined to be insufficient or if changed conditions, including adverse judicial proceedings or revised assumptions, require a change in these reserves.

NACoal’s operations are impacted by the Clean Air Act Amendments on coal consumption.

The Clean Air Act and corresponding state laws that regulate emissions of materials into the air, affect coal mining operations both directly and indirectly. Measures intended to improve air quality extensively regulate the emissions of sulfur dioxide, nitrogen oxide and other substances by coal-fueled utility power plants, which are NACoal’s primary customers. Those measures could make coal a less attractive fuel alternative in the planning and building of utility power plants in the future. Any reduction in coal’s share of the capacity for power generation could significantly reduce the Company’s revenues and profitability. NACoal cannot predict how present or future regulations will affect the coal industry in general and NACoal in particular. It is possible that the new air quality standards under the Clean Air Act and any other future regulatory provisions will materially increase the costs of doing business and reduce consumption of and demand for coal by NACoal’s customers.

In May 2005, the EPA published the CAMR which regulates the emission of mercury from coal-fired power plants. CAMR is a two phase cap and trade regulation with phase one being implemented in 2010 and phase two in 2018. Affected electrical generating units will be able to meet these regulations by, among other things, switching to lower mercury fuels, installing mercury control devices or purchasing mercury emissions allowances. Mercury control devices are just beginning to be demonstrated on a commercial scale; therefore, their efficiency and cost of operation is uncertain at this time.

The cost of controlling mercury emissions will be significant and emission allowances may become more expensive as their availability declines. Switching to other fuels may require expensive modifications to existing plants. The extent to which NACoal’s electric utility customers switch to lower mercury coal or other low-mercury fuel could materially affect the Company if NACoal cannot offset the cost of mercury removal by lowering the costs of delivery of its coal on an energy equivalent basis. There can be no assurance that the Company will be able to offset these costs, which if incurred, could significantly reduce the Company’s profitability.

The EPA promulgated the CAIR in May 2005. This rule requires reduction of nitrogen oxides and sulfur dioxides in 29 eastern States including Texas, Louisiana, and Mississippi. CAIR requires more reductions in the emissions from power plants than the acid rain program, which is the current emission control regulation. Affected power plants will be required to install emission control devices, switch to lower emission fuels, or purchase emission allowances.

The EPA promulgated the CAVR in June 2005. This rule requires power plants not covered by CAIR to install Best Available Retrofit Technology equipment to control emissions that cause haze and reduce visibility. The emissions include sulfur dioxide, nitrogen oxides, and fine particulate matter.

Legislation that could regulate other air pollutants, including carbon dioxide, have been proposed. While the details of all of these proposed initiatives vary, there appears to be a movement towards increased regulation of power plant air pollutants. If

any of these initiatives were enacted into law, power plants could choose to shift away from coal as a fuel source to meet these requirements.

Because coal mining operations emit particulate matter, NACoal’s mining operations may be affected directly when the states revise their implementation plans to comply with the stricter standards for particulate matter and ozone. State and federal regulations relating to the new standards may restrict NACoal’s ability to develop new mines or could require it to modify its existing operations. The extent of the potential direct impact of the new standards on the coal industry will depend on the policies and control strategies associated with the state implementation process, but could increase NACoal’s costs of doing business and significantly reduce the Company’s profitability.

NACoal is subject to the high costs and risks involved in the development of new coal and dragline mining projects.

From time to time, NACoal seeks to develop new coal and dragline mining projects. The costs and risks associated with such projects can be substantial.

General

The Company may become subject to claims under foreign laws and regulations, which may be expensive, time consuming and distracting.

Because the Company has employees, property and business operations outside of the United States, the Company is subject to the laws and the court systems of many jurisdictions. The Company may become subject to claims outside the United States based in foreign jurisdictions for violations of their laws with respect to the foreign operations of NMHG and Housewares. In addition, these laws may be changed or new laws may be enacted in the future. International litigation is often expensive, time consuming and distracting. As a result, any of these risks could significantly reduce the Company’s profitability and its ability to operate its businesses effectively.

The Company is dependent on key personnel and the loss of these key personnel could significantly reduce its profitability.

The Company is highly dependent on the skills, experience and services of its respective key personnel and the loss of key personnel could have a material adverse effect on its business, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of the Company’s business. Therefore, the Company’s success also depends upon its ability to recruit, hire, train and retain additional skilled and experienced management personnel. The Company’s inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business effectively and could significantly reduce its profitability.

The amount and frequency of dividend payments made on NACCO’s common stock could change.

The Board of Directors has the power to determine the amount and frequency of the payment of dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are based on earnings, capital and future expense requirements, financial conditions, contractual limitations and other factors that the Board of Directors may consider. Accordingly, holders of NACCO’s common stock should not rely on past payments of dividends in a particular amount as an indication of the amount of dividends that will be paid in the future.

Item 1B.		UNRESOLVED STAFF COMMENTS

None.

Item 2.		PROPERTIES

A.

NACCO

NACCO currently leases its corporate headquarters’ office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio.

B.

NMHG

1.

NMHG Wholesale

The following table presents the principal assembly, manufacturing, distribution and office facilities that NMHG owns or leases for use in the wholesale operations:

				Owned/
Region		Facility Location		Leased		Function(s)
Americas		Berea, Kentucky		Owned		Assembly of lift trucks and manufacture of component parts
		Danville, Illinois		Owned		Americas parts distribution center

				Owned/
Region		Facility Location		Leased		Function(s)
		Greenville,		Owned		Divisional headquarters and marketing and sales operations
		North Carolina				for Hyster® and Yale® in Americas; Americas warehouse
						development center; assembly of lift trucks and manufacture of
						component parts
		Portland, Oregon		Owned		Counterbalanced development center for design and
						testing of lift trucks, prototype equipment and
						component parts
		Portland, Oregon		Leased		Manufacture of production tooling and prototype units
		Portland, Oregon		Leased		Global headquarters
		Ramos Arizpe, Mexico		Owned		Manufacture of component parts for lift trucks
		Sao Paulo, Brazil		Owned		Assembly of lift trucks and marketing operations for Brazil
		Sulligent, Alabama		Owned		Manufacture of component parts for lift trucks
Europe		Craigavon,		Owned		Manufacture of lift trucks; cylinder and transmission
		Northern Ireland				assembly; mast fabrication and assembly for Europe
		Fleet, England		Leased		Hyster and Yale marketing and sales operations in Europe
		Irvine, Scotland		Owned		Divisional headquarters; assembly of lift trucks, mast
						manufacturing and assembly
		Modena, Italy		Leased		Assembly of lift trucks
		Masate, Italy		Leased		Assembly of lift trucks; European warehouse development
						center
		Nijmegen,		Owned		Big trucks development center; manufacture and assembly
		The Netherlands				of big trucks and component parts; European parts
						distribution center
Asia		Shanghai, China		Owned (1)		Assembly of lift trucks by Shanghai Hyster joint venture
		Sydney, Australia		Leased		Divisional headquarters and sales and marketing for
						Asia-Pacific; Asia-Pacific parts distribution center
India		Pune, India		Leased		Engineering design services

SN’s operations are supported by five facilities. SN’s headquarters are located in Obu, Japan at a facility owned by SN. The Obu facility also has assembly and distribution capabilities. In Cavite, the Philippines, SN owns a facility for the manufacture of frames for SN products. As a result of the acquisition of a retail operation, SN also has two dealerships in Japan.

2.

NMHG Retail

NMHG Retail’s 11 dealerships operate from 37 locations. Of these locations, 12 are in Europe and 25 are in Asia-Pacific, as shown below:

Europe		Asia-Pacific
France (8)		Australia (24)
United Kingdom (4)		Singapore (1)

Dealer locations generally include facilities for displaying equipment, storing rental equipment, servicing equipment, aftermarket parts storage and sales and administrative offices. NMHG leases all 37 locations. Some of the leases were entered into or assumed in connection with acquisitions and many of the lessors under these leases are former owners of businesses that NMHG acquired.

C.

NACCO Housewares Group

The following table presents the principal manufacturing, distribution and office facilities owned or leased by HB/PS:

		Owned/
Facility Location		Leased		Function(s)
Glen Allen, Virginia		Leased		Corporate headquarters
Memphis, Tennessee		Leased		Distribution center
Picton, Ontario, Canada		Leased		Distribution center

		Owned/
Facility Location		Leased		Function(s)
Southern Pines, North Carolina		Owned		Service center for customer returns; catalog distribution center; parts distribution center
Shenzhen, China		Leased		Representative office
Toronto, Ontario, Canada		Leased		Proctor-Silex Canada sales and administration headquarters
Washington, North Carolina		Leased		Customer service center
Saltillo, Coahuila, Mexico		Leased		Manufacture and assembly of retail products

Sales offices are also leased in several cities in the United States, Canada and Mexico.

KCI currently leases its corporate headquarters building, a warehouse/distribution facility and a retail store in Chillicothe, Ohio, and the former Le Gourmet Chef corporate headquarters in Shrewsbury, NJ. KCI leases the remainder of its retail stores. A typical Kitchen Collection^® store is approximately 3,000 square feet and a typical Le Gourmet Chef^® store is approximately 4,400 square feet.

D.

NACoal

NACoal currently leases its corporate headquarters office space in Dallas, Texas. NACoal’s proven and probable coal reserves and deposits (owned in fee or held under leases, which generally remain in effect until exhaustion of the reserves if mining is in progress) are estimated at approximately 2.2 billion tons (including the unconsolidated project mining subsidiaries), all of which are lignite coal deposits, except for approximately 47.9 million tons of bituminous coal. Reserves are estimates of quantities of coal, made by NACoal’s geological and engineering staff, which are considered mineable in the future using existing operating methods. Developed reserves are those which have been allocated to mines which are in operation; all other reserves are classified as undeveloped. Information concerning mine type, reserve data and coal quality characteristics for NACoal’s properties are set forth on the table on page 10 under “Item 1. Business — C. North American Coal — Sales, Marketing and Operations.”

Item 3.		LEGAL PROCEEDINGS

Neither the Company nor any of its subsidiaries is a party to any material legal proceeding other than ordinary routine litigation incidental to its respective business.

Item 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders of the Company.

Item 4A.		EXECUTIVE OFFICERS OF THE REGISTRANT

The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.

There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is elected and qualified.

The following tables set forth the name, age, current position and principal occupation and employment during the past five years of the Company’s executive officers.

EXECUTIVE OFFICERS OF THE COMPANY

Name		Age		Current Position		Other Positions
Alfred M. Rankin, Jr.		65		Chairman, President and Chief Executive
				Officer of NACCO (from prior to 2002)
Charles A. Bittenbender		57		Vice President, General Counsel and
				Secretary of NACCO (from prior to 2002)
J.C. Butler, Jr.		46		Vice President — Corporate
				Development and Treasurer of NACCO (from prior to 2002)
Lauren E. Miller		52		Vice President — Consulting Services
				of NACCO (from prior to 2002)
Kenneth C. Schilling		47		Vice President and Controller of NACCO
				(from prior to 2002)
Constantine E. Tsipis		48		Assistant General Counsel and
				Assistant Secretary of NACCO (from prior to 2002)

PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES

A. NMHG

Name		Age				Current Position		Other Positions
Michael P. Brogan			56			President and Chief Executive Officer of NMHG (from June 2006)		From October 2005 to June 2006, Executive Vice President and Chief Operating Officer of NMHG. From April 2004 to October 2005, Senior Vice President, International Operations and Development of NMHG. From prior to 2002 to April 2004, Senior Vice President, Product Development and Procurement of NMHG.
Gregory J. Dawe			58			Vice President Manufacturing, Americas (from January 2005)		From 2002 to January 2005, Vice President Manufacturing and Quality Strategy.
James W. Donoghue			48			Vice President, Marketing and Distribution, Americas (from April 2006)		From prior to 2002 to March 2006, Vice President of Global Marketing and Business Development, Ingersoll-Rand Company (a diversified industrial company).
Daniel P. Gerrone			57			Controller of NMHG (from August 2002)		From prior to 2002 to August 2002, Director of Financial Reporting and Accounting of NMHG.
Jeffrey C. Mattern			54			Treasurer of NMHG (from prior to 2002)
Ralf A. Mock			51			Managing Director, Europe, Africa and Middle East (from February 2006)		From January 2005 to February 2006, Independent Business Consultant. From July 2002 to January 2005, President, Villeroy & Boch AG (an international industrial enterprise). From prior to 2002 to July 2002, Vice President, Linde AG (a global gas and engineering company).
James M. Phillips			58			Vice President, Human Resources (from prior to 2002)
Victoria L. Rickey			54			Vice President, Chief Marketing Officer of NMHG (from February 2006)		From October 2005 to February 2006, Vice President, Marketing of NMHG. From December 2004 to October 2005, Vice President, Marketing and Retail Operations, EAME of NMHG. From prior to 2002 to December 2004, Vice President, Chief Strategy Officer of NMHG.
Michael K. Smith			62			Vice President, Finance and Information Systems and Chief Financial Officer of NMHG (from July 2002)		From prior to 2002 to July 2002, Vice President, Finance and Information Systems, Americas of NMHG.
Carolyn M. Vogt			49			Vice President, General Counsel and Secretary of NMHG (from October 2005)		From prior to 2002 to October 2005, Partner, Stoel Rives LLP (law firm).
Colin Wilson			52			Vice President and Chief Operating Officer of NMHG (from October 2005)		From July 2002 to October 2005, Vice President of NMHG; President, Americas of NMHG. From prior to 2002 to July 2002, Vice President, Marketing, Americas of NMHG.

PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES

B. NACCO HOUSEWARES GROUP

     1. HB/PS

Name		Age				Current Position		Other Positions
Michael J. Morecroft			64			President and Chief Executive Officer of HB/PS (from prior to 2002)
Keith B. Burns			50			Vice President — Engineering and New Product Development of HB/PS (from prior to 2002)
Kathleen L. Diller			55			Vice President, General Counsel and Human Resources, and Secretary of HB/PS (from June 2006)		From February 2005 to June 2006, Vice President, General Counsel and Human Resources of HB/PS. From prior to 2002 to February 2005, Vice President, General Counsel and Secretary of HB/PS.
Gregory E. Salyers			46			Vice President — Operations and Information Systems of HB/PS (from February 2005)		From June 2003 to February 2005, Vice President — Operations of HB/PS. From prior to 2002 to June 2003, Vice President, Customer Operations of HB/PS.
Paul C. Smith			60			Senior Vice President — Sales of HB/PS (from prior to 2002)
James H. Taylor			49			Vice President, Chief Financial Officer and Treasurer of HB/PS (from January 2007)		From February 2005 to January 2007, Vice President — Finance and Treasurer of HB/PS. From prior to 2002 to February 2005, Vice President — Treasurer of HB/PS.
Gregory H. Trepp			45			Vice President — Marketing of HB/PS (from July 2002)		From prior to 2002 to July 2002, Vice President — Product Management of HB/PS.

     2. KCI

Name		Age				Current Position		Other Positions
Randolph J. Gawelek			59			President and Chief Executive Officer of KCI (from prior to 2002)

PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES

C. NACOAL

Name		Age				Current Position		Other Positions
Robert L. Benson			59			President and Chief Executive Officer of NACoal (from March 2006)		From September 2005 to March 2006, Executive Vice President and Chief Operating Officer of NACoal. From prior to 2002 to September 2005, Vice President — Eastern and Southern Operations of NACoal. From prior to 2002 to September 2005, General Manager of MLMC.
Bob D. Carlton			49			Vice President — Financial Services (from March 2005)		From August 2002 to June 2006, Controller of NACoal. From prior to 2002 to March 2005, Director of Tax of NACoal.
Douglas L. Darby			55			Vice President — Engineering and Eastern Operations of NACoal (from June 2006)		From August 2002 to June 2006, President of Sabine. From prior to 2002 to August 2002, Operations Manager of San Miguel.
Michael J. Gregory			59			Vice President — Southern Operations and Human Resources of NACoal (from June 2006)		From March 2003 to June 2006, General Manager of San Miguel. From prior to 2002 to March 2003, Manager of Sales and Marketing of NACoal.
K. Donald Grischow			59			Treasurer of NACoal (from prior to 2002)		From prior to 2002 to August 2002, Controller of NACoal.
Thomas A. Koza			60			Vice President — Law and Administration, and Secretary of NACoal (from prior to 2002)
Dan W. Swetich			61			Vice President — Northern Operations of NACoal (from June 2006) and President of Falkirk (from prior to 2002).

PART II

Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

NACCO’s Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC”. Because of transfer restrictions, no trading market has developed, or is expected to develop, for the Company’s Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis. The high and low market prices for the Class A common stock and dividends per share for both classes of common stock for each quarter during the past two years are presented in the table below:

		2006
		Sales Price								Cash
		High				Low				Dividend
First quarter		$	156.80			$	116.75				46.50¢
Second quarter		$	172.45			$	127.25				48.00¢
Third quarter		$	142.99			$	119.05				48.00¢
Fourth quarter		$	153.85			$	133.05				48.00¢

		2005
		Sales Price								Cash
		High				Low				Dividend
First quarter		$	115.80			$	94.57				45.25¢
Second quarter		$	114.74			$	96.41				46.50¢
Third quarter		$	118.47			$	105.78				46.50¢
Fourth quarter		$	123.00			$	106.05				46.50¢

At December 31, 2006, there were approximately 350 Class A common stockholders of record and approximately 300 Class B common stockholders of record. See Note 21 to the Consolidated Financial Statements contained elsewhere in this Form 10-K for a discussion of the amount of NACCO’s investment in subsidiaries that was restricted at December 31, 2006.

Sales of Unregistered Company Stock

Pursuant to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan, the Company issued 8,650 shares of its Class A common stock on March 7, 2006 to a limited number of executive officers as a portion of their long-term incentive compensation under such plan.

Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate of 2,429 shares of its Class A common stock on January 1, 2006, April 1, 2006, July 1, 2006 and October 1, 2006 for payment of a portion of the directors’ annual retainer fee. In addition, pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and any committee chairman’s fees. An aggregate of 716 shares of Class A common stock were issued under voluntary elections on January 1, 2006, April 1, 2006, July 1, 2006 and October 1, 2006.

The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities Act of 1933.

Item 6.		SELECTED FINANCIAL DATA

		Year Ended December 31
		2006				2005				2004				2003				2002
		(In millions, except per share data)
Operating Statement Data:
Revenues		$	3,349.0			$	3,157.4			$	2,782.6			$	2,472.6			$	2,285.0
Operating profit		$	172.6			$	108.0			$	88.0			$	117.2			$	115.5
Income before extraordinary gain (loss) and cumulative effect of accounting changes		$	93.4			$	57.8			$	47.4			$	49.8			$	49.6
Extraordinary gain (loss), net-of-tax(1)			12.8				4.7				0.5				1.8				(7.2	)
Cumulative effect of accounting changes, net-of-tax(2)			—				—				—				1.2				—
Net income		$	106.2			$	62.5			$	47.9			$	52.8			$	42.4
Basic earnings per share:
Income before extraordinary gain (loss) and cumulative effect of accounting changes		$	11.34			$	7.03			$	5.77			$	6.07			$	6.05
Extraordinary gain (loss), net-of-tax(1)			1.56				0.57				0.06				0.22				(0.88	)
Cumulative effect of accounting changes, net-of-tax(2)			—				—				—				0.15				—
Net income		$	12.90			$	7.60			$	5.83			$	6.44			$	5.17
Diluted earnings per share:
Income before extraordinary gain (loss) and cumulative effect of accounting changes		$	11.33			$	7.03			$	5.77			$	6.07			$	6.05
Extraordinary gain (loss), net-of-tax(1)			1.56				0.57				0.06				0.22				(0.88	)
Cumulative effect of accounting changes, net-of-tax(2)			—				—				—				0.15				—
Net income		$	12.89			$	7.60			$	5.83			$	6.44			$	5.17

		Year Ended December 31
		2006				2005				2004				2003				2002
		(In millions, except per share and employee data)
Balance Sheet Data at December 31:
Total assets		$	2,156.3			$	2,094.0			$	2,038.6			$	1,839.8			$	1,780.8
Long-term debt		$	359.9			$	406.2			$	407.4			$	363.2			$	416.1
Stockholders’ equity		$	793.1			$	703.3			$	688.0			$	637.0			$	559.4
Cash Flow Data:
Provided by operating activities		$	173.5			$	75.2			$	126.2			$	123.6			$	149.5
Used for investing activities		$	(35.3	)		$	(56.3	)		$	(40.3	)		$	(43.1	)		$	(18.5	)
Used for financing activities		$	(105.8	)		$	(1.8	)		$	(4.1	)		$	(71.9	)		$	(146.8	)
Other Data:
Per share data:
Cash dividends		$	1.905			$	1.848			$	1.675			$	1.260			$	0.970
Market value at December 31		$	136.60			$	117.15			$	105.40			$	89.48			$	43.77
Stockholders’ equity at December 31		$	96.27			$	85.50			$	83.76			$	77.63			$	68.21
Actual shares outstanding at December 31			8.238				8.226				8.214				8.206				8.201
Basic weighted average shares outstanding			8.234				8.223				8.212				8.204				8.198
Diluted weighted average shares outstanding			8.242				8.223				8.212				8.204				8.198
Total employees at December 31(3)			11,300				11,100				11,600				11,600				12,200

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

OVERVIEW

NACCO Industries, Inc. (the parent company or “NACCO”), and its wholly owned subsidiaries (collectively, the “Company”) operate in three principal industries: lift trucks, housewares and mining. Results of operations and financial condition are discussed separately by segment, which corresponds with the industry groupings. The Company manages its lift truck operations as two reportable segments: wholesale manufacturing and retail distribution. NACCO Housewares Group (“Housewares”) also consists of two reportable segments: Hamilton Beach/Proctor-Silex, Inc. (“HB/PS”) and The Kitchen Collection, Inc. (“KCI”). Results by segment are also summarized in Note 19 to the Consolidated Financial Statements contained elsewhere in this Form 10-K.

NMHG Holding Co. (“NMHG”) designs, engineers, manufactures, sells, services and leases a comprehensive line of lift trucks and aftermarket parts marketed globally under the Hyster^® and Yale^® brand names. NMHG manages its operations as two reportable segments: wholesale manufacturing (“NMHG Wholesale”) and retail distribution (“NMHG Retail”). NMHG Wholesale includes the manufacture and sale of lift trucks and related service parts, primarily to independent and wholly owned Hyster^® and Yale^® retail dealerships. Lift trucks and component parts are manufactured in the United States, Northern Ireland, Scotland, The Netherlands, China, Italy, Japan, Mexico, the Philippines and Brazil. NMHG Retail includes the sale, leasing and service of Hyster^® and Yale^® lift trucks and related service parts by wholly owned retail dealerships and rental companies. Housewares consists of two reportable segments: HB/PS, a leading designer, marketer and distributor of small electric household appliances, as well as commercial products for restaurants, bars and hotels located throughout the United States, Canada and Mexico, and KCI, a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection^® and Le Gourmet Chef^® store names in outlet and traditional malls throughout the United States. The North American Coal Corporation and its affiliated coal companies (collectively “NACoal”) mine and market lignite coal primarily as fuel for power generation and provide selected value-added mining services for other natural resources companies in the United States. Lignite coal is delivered to power plants adjacent to NACoal’s mines in Texas, North Dakota, Louisiana and Mississippi and dragline mining services are provided for independently owned limerock quarries in Florida.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates, including those related to product discounts and returns, bad debts, inventories, income taxes, warranty obligations, product liabilities, restructuring, closed-mine obligations, pensions and other post-retirement benefits, and contingencies and litigation. The Company bases its estimates on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Product liabilities: The Company provides for the estimated cost of personal and property damage relating to the Company’s products. Reserves are recorded for estimates of the costs for known claims and estimates of the costs of incidents that have occurred but for which a claim has not yet been reported to the Company, in excess of available insurance coverage. While the Company engages in extensive product quality reviews and customer education programs, the Company’s product liability provision is affected by the number and magnitude of claims of alleged product-related damage and the cost to defend those claims. In addition, the provision for product liabilities is also affected by changes in assumptions for medical costs, inflation rates, trends in damages awarded by juries and estimates of the number of claims that have been incurred but not yet reported. Changes to the estimate of any of these factors could result in a material change to the Company’s product liability provision causing a related increase or decrease in reported net operating results in the period of change in the estimate.

Closed-mine obligations: The Company’s wholly owned subsidiary, Bellaire Corporation (“Bellaire”), is a non-operating subsidiary with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground mining operations. These legacy liabilities include obligations for black lung and other retiree medical benefits, mine water treatment and obligations to the United Mine Workers of America (“UMWA”) Combined Benefit Fund (the “Fund”) from the Coal Industry Retiree Health Benefit Act of 1992 (the “Coal Act”). These obligations have been significantly reduced as a result of the enactment of the Coal Industry Retiree Health Benefit Act of 2006 (the “2006 Coal Act”). Provisions made by Bellaire for these liabilities include estimates of the number of beneficiaries assigned to Bellaire, medical cost trend rates, inflation rates, actuarially-determined mortality tables, cost of ongoing mine water treatment and discount factors. In addition, these liabilities can be influenced by judicial proceedings, legislative actions and changes in regulations made by government agencies. The Company continually monitors the regulatory climate which could influence these liabilities as well as the assumptions used to develop accruals for these liabilities. Changes in any of these factors could materially change the Company’s estimates for these closed-mine obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate. See Note 5, 6 and 14 to the Consolidated Financial Statements in this Form 10-K for further discussion of closed-mine obligations.

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

Goodwill: In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” the Company is required to test goodwill for impairment at least annually. Changes in management’s judgments and estimates could significantly affect the Company’s analysis of the impairment of goodwill. To test goodwill for impairment, the Company is required to estimate the fair value of each of its reporting units. Since quoted market prices in an active market are not available for the Company’s reporting units, the Company uses other valuation techniques. The Company has developed a model to estimate the fair value of the reporting units, primarily incorporating a discounted cash flow valuation technique. This model incorporates the Company’s estimates of future cash flows, allocations of certain assets and cash flows among reporting units, future growth rates and management’s judgment regarding the applicable discount rates used to discount those estimated cash flows. Changes to these judgments and estimates could result in a significantly different estimate of the fair value of the reporting units which could result in an impairment of goodwill. The Company has goodwill of $437.8 million that is subject to at least an annual review of impairment.

Revenue recognition: Revenues are generally recognized when title transfers and risk of loss passes as customer orders are completed and shipped. For NMHG’s National Account customers, revenue is recognized upon customer acceptance. National Account customers are large customers with centralized purchasing and geographically dispersed operations in multiple dealer territories. Under its mining contracts, the Company recognizes revenue as the coal is delivered and limerock is mined. Reserves for discounts, returns and product warranties are maintained for anticipated future claims. The accounting policies used to develop these product discounts, returns and warranties include:

Product discounts: The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At NMHG, lift truck sales revenue is recorded net of projected discounts. The estimated discount amount is based upon historical trends for each truck model. In addition to standard discounts, dealers can also request additional discounts that allow them to offer price concessions to customers. From time to time, NMHG offers special incentives to increase retail share or dealer stock and offers certain customers volume rebates if a specified cumulative level of purchases is obtained. At HB/PS, net sales represent gross sales less negotiated price allowances based primarily on volume purchasing levels, estimated returns and allowances for defective products. At KCI, retail markdowns are incorporated into KCI’s retail method of accounting for cost of sales. If market conditions were to decline or if competition was to increase, the Company may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenues at the time the incentive is offered.

Product returns: Products generally are not sold with the right of return. However, based on the Company’s historical experience, a portion of products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certain customers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this new experience.

Product warranties: The Company provides for the estimated cost of product warranties at the time revenues are recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company’s warranty obligation is affected by product failure rates, labor costs and replacement component costs incurred in correcting a product failure. Should actual product failure rates, labor costs or replacement component costs differ from the Company’s estimates, revisions to the estimated warranty liability would be required which would affect net income.

Allowances for doubtful accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. An impairment in value of one-percentage point of the outstanding accounts receivable would require an increase in the allowance for doubtful accounts and would result in additional expense of approximately $4.0 million.

Inventory reserves: The Company writes down its inventory to the lower of cost or market, which includes an estimate for obsolescence or excess inventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs. An impairment in value of one-percentage point of the outstanding inventories would result in additional expense of approximately $4.8 million.

Deferred tax valuation allowances: The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. A valuation allowance has been provided against certain deferred tax assets related to non-U.S. and U.S. state jurisdiction net operating and capital loss carryforwards. Management believes the valuation allowances are adequate after considering future taxable income, allowable carryforward periods and ongoing prudent and feasible tax planning strategies. In the event the Company were to determine that it would be able to realize its

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

deferred tax assets in the future in excess of its net recorded amount (including the valuation allowance), an adjustment to the valuation allowance would increase income in the period such determination was made. Conversely, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the valuation allowance would be expensed in the period such determination was made.

Self-insurance liabilities: The Company is generally self-insured for product liability, environmental liability, medical and workers’ compensation claims, certain closed mine liabilities and obligations to the Fund arising as a result of the Coal Act. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management’s judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, legal defense costs, inflation rates, medical costs and actual experience could cause estimates to change in the near term. For product liability, catastrophic coverage is retained for potentially significant individual claims.

Retirement benefit plans: The Company maintains various defined benefit pension plans. In 2004, pension benefits for certain NACoal employees, excluding certain unconsolidated project mining subsidiary employees, were frozen. In 1996, pension benefits were frozen for employees covered under NMHG’s and HB/PS’ U.S. defined benefit plans, except for those NMHG employees participating in collective bargaining agreements. As a result, in the United States only certain NMHG employees covered under collective bargaining agreements will earn retirement benefits under defined benefit pension plans. Other employees of the Company, including employees whose pension benefits were frozen, will receive retirement benefits under defined contribution retirement plans. The Company’s policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks, investment contracts and government and corporate bonds. There is no guarantee that the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.

The basis for the selection of the discount rate at each September 30 measurement date is determined by matching the timing of the payment of the expected pension obligations under the defined benefit plans against the corresponding yield of Moody’s Aa corporate bonds of equivalent maturities.

The expected long-term rate of return on defined benefit plan assets reflects management’s expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. The Company has established the expected long-term rate of return assumption for plan assets by considering historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans. The historical rates of return for each of the asset classes used by the Company to determine its estimated rate of return assumption at its September 30 measurement date were based upon the rates of return earned by investments in the equivalent benchmark market indices for each of the asset classes over the time period from January 1, 1960 to September 30, 2006 and 2005. During periods of both significant market gains as well as depressed market returns, the Company has held to a consistent 9.00% expected rate of return assumption.

Changes to the estimate of any of these factors could result in a material change to the Company’s pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the 2006 assumptions are used to calculate 2007 pension expense amounts, a one percentage-point change in the expected long-term rate of return on plan assets would have resulted in a change in pension expense for 2007 of approximately $1.0 million for the U.S. plans. A one percentage-point increase or decrease in the discount rate would have lowered by approximately $2.0 million or raised by approximately $1.0 million, respectively, the U.S. plans’ 2007 expense and would have lowered by approximately $13.0 million or raised by approximately $15.4 million the U.S. plans’ accumulated benefit obligation as of the end of 2006.

The Company also maintains health care and life insurance plans which provide benefits to eligible retired employees. During 2004, due to the significantly rising costs associated with these plans, NACoal announced a change in eligibility requirements, generally limiting the plan to those hired before January 1, 2005, changing the retirement age and years of service requirements for retiree medical coverage, and implementing a cap on NACoal’s share of annual medical costs, which includes freezing benefits for those hired before January 1, 2005. All other health care and life insurance plans of the Company previously implemented a cap on the Company’s share of the costs. These plans have no assets. Under the Company’s current policy, plan benefits are funded at the time they are due to participants.

The basis for the selection of the discount rate at each September 30 measurement date is determined by matching the timing of the payment of the expected obligations under the health care and life insurance plans against the corresponding yield of Moody’s Aa corporate bonds of equivalent maturities.

See Note 18 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company’s retirement benefit plans.

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

CONSOLIDATED FINANCIAL SUMMARY

Selected consolidated operating results of the Company were as follows:

		2006				2005				2004
Consolidated operating results:
Income before extraordinary gain		$	93.4			$	57.8			$	47.4
Extraordinary gain, net-of-tax (1)			12.8				4.7				0.5
Net income		$	106.2			$	62.5			$	47.9
Basic earnings per share
Income before extraordinary gain		$	11.34			$	7.03			$	5.77
Extraordinary gain, net-of-tax (1)			1.56				0.57				0.06
Net income		$	12.90			$	7.60			$	5.83
Diluted earnings per share
Income before extraordinary gain		$	11.33			$	7.03			$	5.77
Extraordinary gain, net-of-tax (1)			1.56				0.57				0.06
Net income		$	12.89			$	7.60			$	5.83

The following table identifies the components of the changes in consolidated revenues, operating profit and net income for 2006 compared with 2005:

						Operating
		Revenues				Profit				Net Income
2005		$	3,157.4			$	108.0			$	62.5
Increase (decrease) in 2006
NMHG Wholesale			103.8				22.4				17.7
NMHG Retail (net of eliminations)			(15.2	)			(2.4	)			(1.2	)
Housewares			72.4				10.0				4.6
NACoal			30.6				37.7				23.5
NACCO & Other			—				(3.1	)			(0.9	)
2006		$	3,349.0			$	172.6			$	106.2

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

CONSOLIDATED INCOME TAXES

The Company’s income tax provision includes U.S. federal, state and local, and foreign income taxes. In determining the effective income tax rate, the Company analyzes various factors, including the Company’s annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the effective income tax rate.

A reconciliation of the Company’s consolidated federal statutory and effective income tax is as follows for the years ended December 31:

		2006				2005				2004
Income before income taxes, minority interest, extraordinary gain		$	120.5			$	70.8			$	52.3
Statutory taxes at 35%		$	42.2			$	24.8			$	18.3
Discrete items:
NMHG Wholesale settlements			(0.4	)			(1.6	)			(2.0	)
NMHG Wholesale change in tax law			—				1.6				(0.7	)
NMHG Wholesale HIA dividend			0.1				2.5				—
NMHG Wholesale R&D credit			(1.3	)			—				—
NMHG recognition of previously generated capital losses			(7.9	)			—				—
NMHG Wholesale state tax valuation allowance			4.1				—				—
NMHG Retail Sale of European dealerships			(1.3	)			—				—
HB/PS settlements			—				—				(1.0	)
NACCO and Other recognition of previously generated capital losses			2.3				(2.8	)			—
Bellaire settlements			—				(0.2	)			(1.9	)
Other			(2.4	)			(1.3	)			(2.2	)
			(6.8	)			(1.8	)			(7.8	)
Other permanent items:
NMHG Wholesale equity interest earnings			(0.9	)			(0.2	)			(2.2	)
Foreign tax rate differential			(1.7	)			(10.4	)			(2.6	)
NACoal percentage depletion			(3.5	)			(5.8	)			(5.1	)
Other			(1.5	)			6.5				4.7
			(7.6	)			(9.9	)			(5.2	)
Income tax provision		$	27.8			$	13.1			$	5.3
Effective income tax rate			23.1	%			18.5	%			10.1	%
Effective income tax rate excluding discrete items			28.7	%			21.0	%			25.0	%

The effect of discrete items on the subsidiaries is as follows:

NMHG Wholesale: During 2006, the Company resolved a claim with the Internal Revenue Service for a Research and Development credit claim in the amount of $1.3 million. Additionally, NMHG recognized a $7.9 million benefit related to the recognition of previously recorded capital losses. Partially offsetting these adjustments, NMHG Wholesale recognized a valuation allowance of $4.1 million for certain state deferred tax assets for which it was determined that future realization is uncertain.

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)

During 2006 and 2005, NMHG Wholesale’s effective income tax rate was affected by the settlement of income tax audits and transfer pricing disputes with various taxing authorities. These benefits were offset during 2005 by the elimination of deferred tax assets which NMHG Wholesale will not be able to recognize due to state income tax law changes enacted in Ohio.

In addition, the financial results of the Company reflect the impact of the repatriation provisions included in the American Jobs Creation Act of 2004 (the “Jobs Act”). The Company repatriated earnings of $56.4 million subject to the Dividend Exclusion provisions of the Jobs Act and recorded tax expense of $2.5 million during 2005 related to the repatriation included in the line “NMHG Wholesale HIA dividend.” Also as a result of the Jobs Act, NMHG Wholesale benefited from the recognition of certain foreign tax credits previously written off.

NMHG Retail: During 2006, NMHG Retail sold a dealership in Europe for a pre-tax gain of $3.7 million. For tax purposes, a portion of the gain was exempt from local taxation and the remaining gain was fully offset by tax net operating loss carryforwards for which a full valuation allowance had been previously provided resulting in a tax benefit of $1.3 million. During 2004, the effective income tax rate for NMHG Retail was favorably affected by the benefit of a settlement of a foreign income tax claim in Asia-Pacific.

HB/PS: HB/PS recognized a tax benefit related to the settlement of audits and transfer pricing disputes with various taxing authorities in 2004.

NACCO and Other: During 2006, consolidated capital losses previously recognized at NACCO and Other have been reversed and recognized at NMHG Wholesale as described above.

During both 2005 and 2004, NACCO and Other recorded tax benefits for the resolution of tax issues provided for in prior years related to state income taxes at Bellaire.

Excluding the impact of the discrete items discussed above, the effective income tax rates for the year ended December 31, 2006 increased from the prior years primarily as a result of an increase in the earnings subject to higher marginal tax rates in the United States. and a decrease in the benefit of percentage depletion at NACoal. Excluding the impact of the discrete items discussed above, the effective income tax rates for the year ended December 31, 2005 declined compared with 2004, primarily due to a shift in the mix of earnings to jurisdictions with lower effective income tax rates and the increased effect of the other permanent items noted in the table above.

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Millions, Except Per Share and Percentage Data)