Good day ladies and gentlemen and welcome to the Q3 2013 NACCO Industries Earnings Conference Call. My name is Mark, and I’ll be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Christina Kmetko. Please proceed.

Thank you. Good morning, everyone, and thank you for joining us today. Yesterday a press release was distributed outlining NACCO’s results for the third quarter ended September 30, 2013. If anyone has not received a copy of this release, or would like a copy of the 10-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, NACCO’s 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 in our 10-Q. In addition, certain amounts discussed during this call are considered non-GAAP numbers. The non-GAAP reconciliations of these amounts are included in our 2013 third quarter earnings release, which is available on our website. I will now turn the call over to Al Rankin. Al?

Good morning. NACCO Industries announced income from continuing operations of $12.3 million or $1.54 per share on revenues of $228 million for the third quarter of 2013, and that compared with income from continuing operations of $10.4 million, or $1.23 per share and revenues of $210 million in the third quarter a year ago. The company’s cash position was $79.4 million as of September 30, as compared with $139.9 million at the end of 2012 and $155 million at September 30, 2012. Debt at the end of September was $175 million, compared with $178 million at the end of last year, and $207 million as of September 30, 2012. As of September 30, 2013, NACCO has repurchased approximately 570,400 shares for an aggregate purchase price of $32.6 million, including $27.4 million of stock purchased during the nine months ended September 30 as part of the stock repurchase program the company announced in November 2011, which permits the repurchase of up to $50 million of the company’s outstanding class A common stock. I will turn now to a discussion of the results of the individual operations. North American Coal had net income for the third quarter of $7.8 million and revenues of $52.9 million, and that compared with net income of $8.1 million and revenues of $38 million for the third quarter of 2012. Revenues increased compared with the year ago primarily due to the Reed Minerals acquisition, which occurred on August 31, 2012. Reed Minerals contributed $18.6 million to revenues during the third quarter compared with $7.7 million for the one-month ended September 30, 2012. An increase in the reimbursable cost at the Limerock Dragline Mining operations, higher deliveries at the Mississippi Lignite Mining Company due to increased customer requirements, and higher royalty income also contributed to the improvement in…

Good morning. Tara Reisbig – Moab Partners: I guess I start with North American coal, I wanted to dig into Reed a little bit more, what is going on in terms of mining restrictions that are increasingly your hauling distances?

I will ask J.C. to address that if I could.

Yep. Sure Al. Yes, so the mining restrictions is really a combination of opening a new mining area, and some geographic restrictions related to some streams and how the exact permit is laid out. It is probably easiest to think of it like a bottleneck. We have got a lot of material because of the new mining area that we are trying to move through while we are mining in a similar area, and it has created a bottleneck. It is causing some productivity inefficiencies and you know, haulage complications. It is a temporary problem. Tara Reisbig – Moab Partners: Okay. So there is no like environmental or EPA issues?

No, no, no, no. Not at all. This is just really logistical bottleneck, partly that we -- we did know that this was going to be there. It is I will say that because of, you know, when you really get down to the timing, we had hoped that it wouldn’t be as tough as it has been but it has been a pretty tough bottleneck. Tara Reisbig – Moab Partners: Got it, okay. Just in general with Reed, I guess if you could sort of, you know, lay out how many stages are there from the time that you acquire the company to the time that you expect to be profitable, how many stages are there and where in that in the range of stages are you today?

Well, I don’t know that you can really think about it in terms of stages as much as it is a series of activities. Some are related to, you know, looking at additional customers, some are related -- which we are actively doing. Some are related to productivity and operational improvements, which are underway. I mean this is -- you know this is a mine. This is something that takes a fair amount of time to move -- even moving pieces of equipment from one area to another takes a while because you have to disassemble equipment and move it. All those things are sort of on track. We think those are moving along as we expected, you know, and we are moving in a positive direction. You know, I think as we said in our outlook, I think we are going to see, you know, a good amount of improvement as we move into next year. But it is a continuum. It is not a -- it is not like there is a factory here. We flip a switch on a new line and it suddenly is operating in a different way. Tara Reisbig – Moab Partners: Right, okay. And can you just give us kind of an updated view or perspective on the met coal market, I guess, you know, domestically and internationally?

Yes. You know, so the met coal that we produce is sold currently into the domestic market. We are finding that price is pretty consistent with what we had expected. We are -- you know, we are seeing some instances, I mean the mentioned the beginning of a seam, there are some instances where we just didn’t have as many tons as we thought we would have at a limited point of time on some met coal. We also see the demand is down generally. So, you know, the price is kind of where we thought it would be -- demand is not where we thought it would be. From an international standpoint, you know, we’re really just playing on the edges of that right now, exploring customer opportunities, I mean it is in the press pretty widely, right. There is a fair amount of softness in the international markets. That is the market we are trying to sell into, albeit we have very small number of tons compared to the overall size of the market. So we are really playing in kind of a niche space there. Tara Reisbig – Moab Partners: Right, and how do you view demand in 2014, do you see it picking up at all, or kind of staying flat?

From a domestic standpoint I would say it is flat to slightly up. From an international standpoint, you know, I don’t know that we have any changed view, it continues to be sort of the same market we have all been looking at the last six months or so. Tara Reisbig – Moab Partners: Okay. In terms of the royalty income, you said in 2014 you expect it to be down significantly, could you just give a little more color on that?

Yes. You know, so the royalties that we get are really controlled by other folks. It is other people that are either mining coal that we own or you know doing other work. We really don’t control their mind plans, we don’t control how these guys operate. In some instances, we have had some of these folks tell us that they are going to be mining in areas that their mine plans are going to move into areas that do not include our coal for part of next year, all of next year. In other instances, we just haven’t heard from other folks and we’re not going to count those chickens before they hatch, right. It is foolish for us to speculate on continued, you know, royalties from somebody if we don’t know where they are going to be operating. Tara Reisbig – Moab Partners: Fair enough. The SG&A seems like it has come down pretty significantly, I mean, is $5 million quarter a good run rate or you know, how should we think about the cost that you have been able to take out of the business?

You know, I would be inclined to think a little bit less about sort of taking cost out than I would about the ebb and flow of certain kinds of expenses that we incur. For example, we had expenses a year ago for the acquisition of Reed, professional expenses of various kinds that was obviously a dropout. Secondly, we had incentive compensation programs that had substantial pay-off last year based on the results the way we -- based on the formulas that we used for incentive compensation, those don’t always repeat and so, I think it is less, what I would call cost reduction than a fairly level decent cost that fluctuates depending on certain specific impact, such as I just described. Tara Reisbig – Moab Partners: Okay. So I guess going forward it seems -- I’m just trying to, you know, determine what a normalized SG&A is for North American coal, obviously last year it was sort of skewed with the Reed acquisition, this year it seems like you have got -- you are up to about 19 million year-to-date versus 25 million last year. You know, you have just started sort of breaking out more of the expenses on a line item basis, which is great but can you may be give us a sense of what you did fourth quarter for SG&A?

I don’t have that number, but what I would say is that generally speaking the SG&A was high in 2012. It is lower in 2013, and we would expect it to go up to more normal levels in 2014. Tara Reisbig – Moab Partners: Okay. I want to get into some of the unconsolidated mines now, it looks as though for both for Caddo Creek and Camino Real you had some delays in terms of when you plan to commence the initial deliveries, I believe Caddo Creek was supposed to as of last quarter start delivering in 2014, and Camino Real is expected in the back half of 2014. Both of those seem to be pushing into 2015 now, so just curious sort of if there is a reason for that?

No, both of those contracts are, you know, unconsolidated as you noted. All of that is really dictated by the customers. Those are the standard contracts, where they really determine the pace of development of their own facilities and the pace of development of the mine, so it all winds up together. That is the source of the delays. Tara Reisbig – Moab Partners: Okay. Both of those are currently permitted and things of that nature it is just really developing the mines there?

Yes. Tara Reisbig – Moab Partners: Okay. How long will the Mississippi Lignite Mine power plant be out in 2014, the planned outage?

You know it is a customer matter that we don’t -- we don’t disclose if they don’t disclose, and that I would also add that those tend to change over time as they get their contractors and equipment scheduled. So, we don’t this far out in advance speculate on that. Tara Reisbig – Moab Partners: Okay. Going back to the unconsolidated mines quickly, it looks as though the gross margin appears to be declining slightly, in the first nine months of 2013 it is 12.9% versus 13.6% in 2012, is there any reason, are you getting any push back on the plus side of those contracts?

No. No, I think it is…

It is supposed to be -- it is probably the mix of tons sold, probably the biggest influence on all of that, but they are all according to contract.

Yes, Al I agree. It is mix of tons between the various operations. I think it is also mix of indices that are used to escalate the various payment provisions in each of those as well. Tara Reisbig – Moab Partners: Okay. Then lastly on coal, what is the $5 million in escrow for future investment for?

Yes, so that is an investment that is actually being held in escrow because it hasn’t closed yet. But it is investment that we have made into a customer’s facility that they are going to be building that will take some additional tons. Tara Reisbig – Moab Partners: That is a current customer?

Yes. Tara Reisbig – Moab Partners: Okay. Okay, and…

And it is -- I would only add that it is -- it is a small minority position. It is not anything where we have, you know, any sway in that. Tara Reisbig – Moab Partners: Okay. Then my last question is about Kitchen Collection, you know, why do you guys continue to build out new stores when same-store sales are declining, I know you mentioned that the new stores will be in strong robust markets, but you know, why not just close the ones that are underperforming, and you know, run the good ones going forward, why continue to invest in new stores when the outlook for -- the outlet malls is pretty grim?

Well, you are right. It is a difficult outlet time, outlet mall environment right now. But we will just put the emphasis on the point you noted, which is that we have very stringent controls on the malls that we are putting stores up on. And I would add in addition that some of those stores have contractual provisions that permit us to go in during the high selling season in the fourth quarter, and then close them shortly thereafter. So, we are being extremely careful about new store openings for all the reasons that you just mentioned. Tara Reisbig – Moab Partners: You are not necessarily signing long-term leases with these outlet malls, you’re really just going in for the holiday season, and then getting back out?

We are going in in many cases for the holiday season, and then in the situations where both the nature of the mall and the position of the store in the mall, and the rent structure that we are able to negotiate mean that we are confident that -- have a high degree of confidence that we can make an acceptable profit. So, I mean it is important to understand that the entire mall industry or all the stores that we have are not necessarily having declines. It is more pronounced in some types of malls, but in other types of malls and we are concentrating and focusing on those areas where we think the prospects are good, but we are being extremely careful. And as you can tell, we are prepared to have a smaller sales base and a sound core, I think is the terminology we use as we look forward, and you know, our hope certainly is that eventually conditions in outlet malls are going to improve, but we’re not counting on it in terms of our deployment of new stores. Tara Reisbig – Moab Partners: Okay. Lastly on the capital return program in terms of buying back shares, I think you guys have roughly 15 million to 20 million left in your authorization, do you have any plans to increase that once you have expired it, do you plan on using that through the end of this year, how do you -- you know, do you view your stock as cheap where it is trading today, any further…

What I would say is we have -- we have been buying as you noted over the course of the year, and then third quarter. We will continue to have additional purchases in due course up to the maximum it has been approved by the board. And then of course the board will consider share buyback programs and other uses of capital at a regular basis at all of its board meetings, and that is really the only comments that I can make at this time. Tara Reisbig – Moab Partners: Okay, all right, then lastly, how is management compensated, are you guys incentivized with, you know, stock price growth and EBITDA, what really drives your compensation?

Well, we have goals that are set for each business, and those goals collectively make up the incentive compensation for those of us in the -- at the parent company level. We pay a certain amount that is based on whether we do better or worse against those goals. A portion of that amount is paid in cash, and the remainder is paid in shares, which a participant at the corporate level is expected to hold for 10 years, and at the individual subsidiary levels the compensation is simply based on the individual objectives within that business, and then, either paid out in cash or put into effectively a long-term program. But those are not based on the corporate share program. Tara Reisbig – Moab Partners: Right, but I guess if you…

So, for example -- for example, in the coal business a big driver is signing new contracts that benefit the company over the long term, as well as accomplishing the financial objectives that were set out at the time of acquisition of those coal mines, and Hamilton Beach, it is based on volume growth and also on the operating profit levels that are achieved and the same with the Kitchen Collection. Tara Reisbig – Moab Partners: Okay, great. That is very helpful. That is it from me. Thank you guys very much for the additional disclosures.

Okay. Thank you. Are there other questions?

There are no further questions in queue.

Okay. I think then that completes our quarterly update for the third quarter for NACCO Industries. Christy?

Yes. Thank you for joining us today. We do appreciate your interest and if you have any further questions, please give me a call. You can reach me at (440) 229-5130. Thank you.

If you would like to listen to the replay from today’s call, the dial in number is (888) 286-8010 with the pass code of 866-855-76. Thank you very much.

Okay. Thank you all very much. Bye-bye.

Thank you very much. This concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.