Good day ladies and gentlemen and welcome to the Quarter Two 2013 NACCO Industries Earnings Conference Call. My name is Michelle, and I’ll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. And I would like to turn the call over to Christina Kmetko. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Last night a press release was distributed outlining NACCO’s results for the second quarter ended June 30, 2013. If you have not received a copy of this earnings release, or would like a copy of the Q, you may obtain copies of these items on our website at nacco.com. Our conference call today will be hosted by Al Rankin, Chairman, President and Chief Executive Officer of NACCO Industries. Also in attendance, representing NACCO Industries are Mark Barrus, NACCO’s Vice President and Controller; and J.C. Butler, Senior Vice President, Finance, Treasurer and Chief Administrative Officer. Al will provide an overview of the quarter and then open up the call to your questions. Before we begin, I would like to remind participants that this conference call may contain certain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. Additional information regarding these risks and uncertainties was set forth in our earnings release and our 10-Q. In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our second quarter earnings release which is available on the website. I will now turn the call over to Al Rankin. Al?

Good morning. NACCO had an income of $5.1 million or $0.63 a share on revenues of $196 million at the second quarter of 2013 and that compared with income of $3.4 million, $0.42 a share on revenues of $171 million in the second quarter a year ago. Consolidated EBITDA from continuing operations for the second quarter of 2013 in the trailing 12 months ended June 30, was $13.2 million and $86.3 million respectively. The Company’s cash position was about $85 million as of June 30, compared with $140 million as of December 31, 2012 and a $160 million as of June 30, a year ago. Debt as of June 30 of this year was a $163.9 million, compared with $177.7 million as of December 31, and $164 million as of June 30, 2012. NACCO implemented a stock repurchase program in November 2011 that permits the purchase of up to $50 million of the Company’s outstanding Class A common stock and as of June 30, NACCO has repurchased approximately 500,000 shares for an aggregate purchase price of $26.8 million, including $21.6 million of stock purchased during the six months ended June 30 of this year. As a highlight, before I go into the details of the individual subsidiary companies, I would note that net income in the second quarter of this year includes a charge of $2.3 million at Hamilton Beach, or $1.5 million after tax related to an estimate for an environmental liability to Hamilton Beach's Picton, Ontario facility. Turning now to the discussion of the individual subsidiary results, I will begin with North American Coal. The coal company's net income for the second quarter was $9 million and revenues were $43.6 million, that compared with net income of $7.1 million and revenues of $19.2 million in the year ago…

Thank you. (Operator Instructions). The first question we have comes from the line of Tara Reisbig from Moab Partners. Please proceed. Tara Reisbig – Moab Partners: I guess we'll start off with a consolidated mines, in terms of the Mississippi lignite power plant, is that extended shut down over or would that continue to impact results through the rest of the year.

That shut down is over. Tara Reisbig – Moab Partners: Okay. So it shouldn't have an impact on the second half tons.

Correct. Tara Reisbig – Moab Partners: Okay. In terms of Reed would did the unexpected major equipment repairs entail?

Well, you know it's very difficult to evaluate in the context of an acquisition, the amount of maintenance that is required and the kinds of things that we think are appropriate in terms of getting the equipment up to the levels that would generate the maximum productivity and so we have gone through an extensive process of ensuring that the equipment operates at the kind of levels that North American Coal has set its standards on and we expect those to be largely behind us. Tara Reisbig – Moab Partners: Was it one of the drag lines that was down? It sounds like you guys are getting a new one in the beginning of next year?

It was not the drag lines were down. It really had much more to do with our rolling stock, equipment of various kinds and I think that's all that I want to say at this point. Tara Reisbig – Moab Partners: Okay. So far Reed has underperformed your expectations largely given to the metallurgical coal market. What are your expectations for that business at this point? How long might it take for the company to return to profitability?

Well, we continue to be hopeful that we'll move into profitability relatively quickly. It was always part of our expectation that we would both expand our capacity and as you noted there is a new drag line that will be coming online and that we would have our own people beginning to develop additional sales opportunities with new customers. That process continues to move forward and it's certainly our goal to have a profitable year in 2014. Tara Reisbig – Moab Partners: Okay. How many tons did Reed deliver prior to your acquisition and how much do you think it might be able to deliver with the addition of this new drag line?

I don't think we're going to get into that kind of detail in terms of the sort of forecasting what we do. Tara Reisbig – Moab Partners: Okay. Fair enough. Moving on to the unconsolidated mines, why were the tons delivered for the unconsolidated JVs down year over year?

Well, you know in all these unconsolidated mines, we do what our customers ask us to do. In other words it's their requirements that determine what we do and to the extent that their requirements vary seasonally, they vary with outages, they have a whole variety of considerations and so I just really leave it at that in terms of how we look at the overall situation. It would take view and we tend to oscillate around the levels that our customers have when our power plants are operating at full levels. I think that’s the best answer that I can really give you and we kind of gave you some prospective in the second half as well and if to tie it all together, I think it's much more realistic to look at these from a full year point of view. Tara Reisbig – Moab Partners: Do those customers have minimum delivery requirements in the contracts?

Well, they can’t operate a power plant without, let me take the bulk of these and the bulk of tons they are all related to power plants. The power plant is built on top of the coal mine. The power plant gets coal from nowhere else. So, if the power plant is operating, it takes our coal and it’s not a sort of market based situation and that’s why as you know we had the extended outage in the consolidated mines, the Mississippi Lignite Mining Company and so that reduced the tone that they take. Now there are protective provisions in our contracts, which means that we are reimbursed for certain costs, even if the company doesn’t take the tons of coal. Our profits tend to be dependent on the number of tons that are taken but the costs tend to be reimbursed by the customers under the contractual provisions that we have. So I think it is not like a free market situation where the company, if the volume is lower is absorbing very substantially higher fixed cost in most cases. Especially in our unconsolidated mines it's much closer to a service agreement than a free market coal sales situation where the number of tons is determined by the market, the price is determined by the market and the costs are determined by the company and none of those factors are really at work in quite that way in our contracts. Tara Reisbig – Moab Partners: Okay, great. In terms of those contracts, do you expect the plus portion of your cost-plus contracts to stay flat over time, decrease over time, go up over time? How should we consider that? Especially given that, if you use today's number on a per-ton basis, that would project greater than 50% growth there over the next several years.

We cannot think in terms of per ton numbers the way we think about the business, but what I would say is that all of these contracts have escalators in them, and if there are certain costs that we are responsible for, those have escalators that are designed to allow us to recapture those costs and our profits escalate over time. The escalating provisions vary but there are various government provided indexes that control the incremental profits that are incurred by the company. Tara Reisbig – Moab Partners: In terms of pricing, we know you guys took the Coyote Station contract from Westmoreland. I was just wondering how aggressive you are being on pricing and trying to win more contracts and if you see any potential to win further contracts from either Westmoreland (ph) or BNI.

Again let me emphasize that in the case of Coyote, we're entering into a long term contract with them. And these contracts are all take or pay type of contracts at one form or another. And different contracts have different provisions for how capital costs are handled and passed through and so on. So the pricing that we use is not pre-market pricing where you can run into the kind of issue that you are implying. And what I would simply say to you is that the profits are relatively predictable. If we can mind the way we think we can mind, and if the customer's power plant takes a number of tons that they expect to take to operate at the levels that they have given us is the assumptions for their operating performance in which we have determined to be reasonable and then we calculate returns and hurdle rates and in terms of the investment and what we think our services are worth and we price the contracts accordingly. In all of these cases it really is much a function of the cost of mining the coal that we control, and that the customer wants to tie up on a long term basis. And in the case of the contract you are referring to, the power plant really did have reserves, or any reserves that they had access to were extremely high cost. So it is a contract that we feel very comfortable with and that will be good for them and good for us.

It's JC. I would just like to clarify that a reference was made that we took the contract away from another miner. The customers actually ran an open RFP process, solicited proposals from anybody that wanted to bid. We submitted a proposal and like others did I believe Westmoreland did but I don't know for sure. And the customers selected us as the folks that they wanted to go forward with. So it' was an open RFP process.

In other words their contract really came to an end and then the question was where from there.

We are modelling to an end in May. May of 2016 is when that contract comes to an end. So in anticipation of that is when the customer ran the RFP.

So it's a very important point that in almost everything we do, we have competitors and the question is how their power plant going to be serviced from cold reserves that are in the general area of the power plant or else, as in the case of the Liberty Fuel Project in Mississippi the decision by Mississippi Power to locate that plant on top of our coal reserves as opposed to any other coal reserves that they might have looked at, because they thought that we provided the best mining cost structure for them in terms of their power plant. Tara Reisbig – Moab Partners: Understood. In regards to the entire market I guess, mainly North Dakota are there any other contractors, either yours or with competitors that are going to be coming up for rebid soon, I guess, that might be included in an open RFP process?

All of the existing power plant stuff a long time to run. We have referred to the development of a new mine called Otter Creek and the permitting process and so we certainly are looking for new customers for Otter Creek and having discussions with a variety of people about that operation, but nothing that affects our existing mines. Do you have anything you want to add, J.C?

No. I was just going to say our contracts are long term contracts and as far as other RFPs that are open or that we might or might not participate in, I don’t think we want to comment on that. Tara Reisbig – Moab Partners: Okay. You guys had mentioned the Liberty Mine. Is that ahead of schedule? I think we thought it was not supposed to commence deliveries until mid-2014; but it sounds like it is on track to reach full production in late 2014. Or is it to say that the ramp-up doesn't take that long?

Yes. So, it's right now producing coal but not delivering Coal. The production is just being put on the stockpile. Deliveries will start later in conjunction with the startup of the gasification and power plant and deliveries. Ultimate production is on schedule. Tara Reisbig – Moab Partners: Okay, great. I think that covers North American Coal for us. Moving on to Kitchen Collection, you said that most of the underperforming and loss-generating stores should be closed in early 2014. Does that imply or is it reasonable to assume that Kitchen Collection may be profitable some time maybe mid-2014?

I would say that we would certainly be hopeful that Kitchen Collection in total would be profitable over the whole year. Essentially all of the profits are made in the fourth quarter of the year. So, even in the best of times Kitchen Collection would have lost money in the first three quarter of the year. It's because of the highly seasonal aspect of that business. But the premise that we would be in more normal conditions I think I correct in 2014 or after the first quarter of 2014. I think the unknown is consumer activity at factory outlet malls. I think that has been a weak spot in the economy. Certainly as employment improves, as unemployment declines, we would except to see some improvement in traffic flows into outlet malls and that’s a very important factor from our point of view, just setting aside what we do to control our own results.

And Al, if I could add one more thing regarding store count. The question about do we expect to have all our own unprofitable stores closed, the opening and closing of stores is a dynamic process. We’re constantly evaluating the store portfolio and we look at things like when leases come due whether that’s stores profitable at the store level and so on. So, I think we could expect to see even going forward, what we will expect to see is a continuing number of both stores opening and closing and year in - year out that is part of the normal course of operations, that stores will open and close.

It's a special program or the intensity focus on this will be completed as you suggested by the end of the first quarter but Mark's comment is correct with regard to the ongoing business. Tara Reisbig – Moab Partners: Okay. Where the new stores that you have been opening? They seem to be offsetting the profit loss from the underperforming stores. Just wondering where your target markets are.

They're nationwide, we have 300 stores. They are all over the United States and there's no particular pattern to where they are opened and closed. Let me give you a bit more insight there. It is dependent on a couple of things; one where developers build new factory outlet malls and we are viewed as a valued client of factory outlet malls, and secondly there are some existing outlet malls where we don't have positions, where if the right kind of space opens up where we might be willing to look at it, we do pretty comprehensive job of trying to evaluate malls in terms of their key characteristics and terms of the areas they're put into and the attractiveness of the malls and secondly the attractiveness of our location in those malls, and those are two very important criteria for us. But generally speaking, the industry is a nationwide industry and we are following the outlet mall industry as it makes decisions on where to put these malls. Tara Reisbig – Moab Partners: Okay. And lastly for us, just a general question. How do you think about the uses of cash in relation to further stock repurchases versus some of the expansion opportunities that you have outlined in the press release?

For NACCO, we certainly continue to have an open share buyback program and we will be continuing to pursue that with the decisions made periodically based on the situation as we see it in terms of price and other characteristics and then I would simply say that Hamilton Beach is not a capital intensive business, that Kitchen Collection really isn’t a capital intensive business and the strategic initiatives in those businesses may involve some operating expense but not any significant capital requirements, other than if we grow at Hamilton Beach in the way that we hope that there will be additional working capital requirements but it's not major commitments of capital and would be self-financing in large measure. At North American Coal you've heard in each case of the projects where capital is being expended and in particular we're spending some capital on Reed and we always have replacement capital at our other big consolidated mine, Mississippi Lignite Mining Company. But again, in the context of things over the longer term and assuming the competition of our post acquisition implementation program at Reed, we don’t expect that business to be particularly capital intensive on the margin either. So I put the answer to your question in sort of reference to those comments and the strategic initiatives at the coal company, at least as we see them at this point are not particularly capital intensive either. Now obviously opportunities could come along that could vary from that, but at this time that's not the focus.

And Tata, I think we have access to these number, but there was $50 million authorized and we're $26.8 million into that program as of June 30. Tara Reisbig – Moab Partners: Okay. Just a follow up on that. Can you give us any kind of indication of maintenance CapEx level for North American Coal versus growth CapEx in terms of what's expected for 2013?

I really think the best thing to do is to focus on what we have put in, the queue, what we have put in our press release. The huge bulk of the maintenance capital requirements is really in mines where the customer is paying for all of that capital and so it doesn’t even flow through our books. We are in effect the operator of a much bigger coal mining business than the numbers we report publically, but our customers are responsible for those and you'll find that those expenditures and indeed the operating P&L's of those businesses are in fact on the books of the power companies in many cases. Tara Reisbig – Moab Partners: Okay. Could you give us a sense of how much is the new dragline that Reed might cost?

Mark, what have we said in the Q.? It is the limit of what we would say.

What we forecast for 2013, $42.6 million total expenditures of coal and we have not disclosed the '14 numbers yet. And that the dragline is ongoing.

And how much have we spent in the first six months, Mark?

The first six months were about a little bit less than halfway there. I'm sorry 13.7 million. So we have ways to go yet out of the total of 50 million for the whole company.

But I think that we have said that the capital expenditures would be much more intensive this year as we address the issues, as implement the acquisition program at Reed.

Thank you for your question. We have no further questions at this time, sir.

Okay, thank you very much.

Thank you for joining us today. We appreciate your interest and if you do have any additional questions, you can reach me at 440-229-5130.