Good Day, ladies and gentlemen. And welcome to the Q2, 2014 NACCO Industries Earnings Conference Call. My name is Tracey and I’ll be your operator for today. At this time all participants are in a listen-only mode. (Operator Instructions). As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Christina Kmetko. Please proceed. Thank you.

Good morning, everyone, and welcome to our 2014 second quarter earnings call. I am Christina Kmetko and I am responsible for investor relations at NACCO Industries. Joining me on today’s call are Al Rankin, Chairman, President and Chief Executive Officer. J. C. Butler, Senior Vice President, Finance, Treasurer and Chief Administrative Officer and Elizabeth Loveman, NACCO’s Vice President and Controller. Yesterday we published our second quarter 2014 results and filed our second quarter 10-Q and for three and six months ended June 30, 2014. Copies of our earnings release and 10-Q are available at our website at nacco.com. Anyone who is not able to listen to today’s entire call and our typed version of this webcast will be on your website later this afternoon and available for approximately 12 months. 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, in either our prepared remarks or during the following question-and-answer session. We disclaim any obligation to update these forward looking statements which may not be updated until our next quarterly earnings conference call, if at all. Additional information guarding these risks and uncertainties were set forth in our earnings release and in our 10-Q. Also certain amounts discussed during this call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our 2014 second quarter earnings release available on our website. Finally we have made some changes to our presentation format. We are not going to provide as much detail from our earnings release as we have in the past. Instead I will be providing a brief overview of…

(Operator instructions)

While we are waiting for questions let me provide my contact information. If you do have any questions after today’s call my number is 440-229-5130.

Thank you, the first question is from the line of Craig Iman. Please go ahead.

Hey guys, thanks for taking my question. Wanted to talk a little bit about the Kitchen Collection business. Historically just looking back, even in its best time it was making $4 million and performance continues to deteriorate. And really every life of it had made a whole lot of money. So just kind of want to understand your strategic thoughts around, is this one going to be a business that you keep feeding money to or are you trying to get capital out of it and just shrinking until it is profitable or earns a decent return on capital. Just want to understand what you all are thinking there in terms of the Kitchen Collection business, thanks.

This is Al Rankin. I’ll comment on that. I think the first perspective is that our, view is in the last couple of years the strategic position of that business has changed. It’s probably some combination of competitive characteristics in the factory mall, environment as a result of increased internet sales and a different competitive structure and a different customer prospecting structure emerging and secondly I think there’s simply less traffic to factory outlet malls and to some degree to all malls for some of the same kinds of reasons. As you know this has always been a small business for us. Historically we had some modestly profitable operations for a few years, but we saw the opportunity for it to improve significantly over time. I think our view is moderated in that regard and I only say that at this point we’re closing all stores that don’t need our financial requirements and that is leading to shrinking of the business and we’ll see just how far that process goes as you point out. Less capital will be deployed in the business. We’re not at the capital levels that we want to be in because the business has been shrinking, but we feel that things should be pretty well stabilized by the end of the year. The second half should be significantly better than last year. So we’re pretty close to the point of stability. I just point out that it doesn’t consume a lot of senior management time to have that. Generally speaking is a very sound – should be a sound situation and we’ll just have to manage it as we go forward with less capital. Does that answer your question?

Yeah, that definitely makes sense.

Okay, thank you.

Thank you, your next question is from the line of Brian Lennards [ph]. Please go ahead.

Hi, good morning. I had just a hand full of questions. If we can start on North American Coal. Can we break down the cost of goods sold for the consolidated mines, more specifically how much kind of that increase year-on-year was Reed? How was the underlying business of the consolidated mines performing?

I think the best way to answer that is to say very exquisitely that we’ve had considerable difficulty at Reed in the second quarter, that we brought a lot of resources to bear, to improve it. There were some actors that were beyond our control, but it’s been a big drag and we see that changing year-on-year very dramatically in the third quarter and in the fourth quarter. So I think by far the worst is behind us at this point. But Reed is, we don’t really look at it from a caution good soul kind of view so much as just the profitability and obviously the product lack of adequate productivity leads to high costs, but it’s really in our view, a variance is from where we expect to be in the future. So it is the biggest issue in the consolidated mines and we expect it as we go in to the third quarter that we’re going to have some dramatic year-on-year improvements.

If I could just add to that, to the cost and we’ve been talking about this for a while in our earnings release. We’re installing a new drag line, one of the largest mine areas at the Reed operation that will bring significant cost reductions. The reason we’ve invested in this equipment over the last few quarters and got it installed is to drive down the costs, so that you can be profitable even in a low price environment. So the actions we’ve been taking are directly related to driving down costs.

Is that drag line up and running as we speak or is that still to come?

No, that’s the drag line that we mentioned that was delayed in the earnings release and that is now up and running and its, we’re in training mode and we’re making nice progress.

Okay, because if you look at the overall revenue growth of the consolidated mine, it was very solid for the quarter. That the underlying trends, if you look on a gross profit point of view, I don’t think really show the positive [indiscernible] it. Did the one-time charges that you guys put in the release, I think they’re in total $2.7 million. Did that fall through the – run through the cost of goods sold on the consolidated side?

Well again I think the way we think about this is we think about the results in our consolidated mines and the results in our un-consolidated mines, and I think specifically you asked about the performance of the consolidated mines and it was Reed that was driving the big negative in the second quarter and it’s for reasons that we think were outlined in the earnings release and we think that are going to be dramatically improved in the third and fourth quarters. So I think that’s really the way I’d look at is that the operating profit contribution perspective which is the way we represent the numbers in the MD&A analysis.

One other item just to add is the Florida operations that have a $ 1million charge in the quarter that we enter the cost of goods sold, that’s impacting operating profit.

So the $1 million did, but the 1.7 did not. Where did the 1.7 run through?

Yeah, India falls in other below operating profit.

Below, okay. Given all the talk on environmental regulations what have your utility clients been talking about? I know there’s a pretty big outage coming up here in the second half of this year at one of your mines. How about on the unconsolidated mines. What have you been hearing from your utility customers, the regulation front?

So obviously we’re studying this and we’re spending a lot of time talking with our customers and as well as state officials and other regulators and folks that the federal level. I mean I think the jury is still out broadly about what this rule really means. There’s a lot of questions it enforceability. There’s a lot of questions about how it might play out in the changing markets within states and of course it – energy is not dispatched state, it’s dispatched by region and I think there’s a lot of questions about that. You mentioned the outage that the Red Hills customer, the Mississippi Lignite Mining Company customer in the fall. I mean I think that’s a good example of what we’re seeing. Our customers are continuing to make substantial investments in their coal fired power plants because they just see that these are good reliable low cost environmentally up-to-date power plants that they believe should continue to run and they’re continuing to invest a lot of money on. It’s not just our customers, and it’s not just the power plant that we serve. These are all sorts of coal fire power plants. People are continuing to make investments on them. So I think there’s some real doubt about whether this really plays out as dramatically as some in the press have speculated.

Okay.

Let me just add to that, that I think we have regular out agents for maintenance purposes and all of our – the power plants that we serve with our mind mouth to operations, and so those are regular near term events and as J.C has indicated we don’t see any change in behaviour. People are continuing to be committed and I just emphasize that the EPA will that are being happy debated in terms of what their impact may or may not be and the lack of clarity of all that is an impact that wouldn’t come for several years under any circumstances. So there isn’t anything immediate about those rules. They will only affect things several years from now.

Okay. You guys owned Reed for about eight quarters now. What have you kind of learned over this time period because it seemed in the recent past that trouble started to kind of bubble up in a pretty big way. What have you kind of learned from that and how to implement certain things going forward?

There are a couple of things that I’d say. First is we did not buy at the peak. Looking backwards we probably didn’t buy at the trough either. I think we feel we made a good long term acquisition. What we have been able to do is to add reserves and capabilities at the trough that are going to significantly benefit us in the long term in that operation. So we feel on balance that we’ve gotten in a good strategic position. I think if we burned anything, we have to move faster to implement the professional mining practises that we have in all of our other mines. In existing mines that we acquire and get those practice in place more quickly and more comprehensively. But we’ve had a good operation for the future. We got the resources to bear on it. And we feel that on balance we’re positioned well for the future.

And speaking of investments, CapEx has been running pretty heavy in segment. How do you see that for the second half of the year playing out?

I actually think that’s good, the numbers in the 10-Q, was it maybe you’ve got the number. But we don’t have a lot of capital investment forecasted in the future.

North American Coal future CapEx for the remainder of the year is $21.8 million.

Additional on top of what you spend in the first half, correct?

Yeah, yeah, of being reduction and that’s for all sorts of things. That’s not just every –

And for Mississippi, Florida.

Okay, switching gears to Hamilton Beach, can you remind us what this environmental charge is for?

We have a Canadian Distribution Centre that we have leased for many, many, many years and going way back it had had some manufacturing activities in it and that were quite traditional at the time and like many of our other manufacturing sites it has – they have environmental problems today. These really didn’t serve us until just recently and so as they served us we put them on the books and we feel that we have a reasonable handle on them now and we’re – so the last two years have been of charges for that facility, have related to that. We’ve also had another facility where we’ve had environmental obligations for a long time and actually in that particular case we have received some additional proceeds or the promise of additional proceeds from predecessor company and that’s offset some of those charges. So it’s all related to long past activities.

Of the two charges are we kind of at the point where we’re done, kind of these one of these things or there could be possibly more to come.

Well there’s always possibly more or less to come. But our obligation under GAAP principals is to book a charge that we think is reasonable as its defined by GAAP principals and that’s what we’ve done, based on all the knowledge that we have at this point and we had a study done and the study gave us more knowledge and that’s we increased the reserve.

Got it, okay. Any updates on the agreement with [indiscernible] Group? Is that progressing along as --?

It is progressing along. I’ve had a review of the program. I think everyone is very pleased with how that program is coming at this point and it’s moving along right on schedule.

And that’s still for products to be available spring of 2015 or everything just gets in motion by spring of 2015?

We begin to have products I believe in the spring of 2015, isn’t that right Elizabeth?

Correct.

Okay. And then how about just underlying new products. I know you’ve been pointing some out in the release, but they’ve been, kind of been pointing out in the release for quite some time. But do you have any new products that will be new to the market from Hamilton Beach for this coming selling season?

I don’t expect to see anything that will – that we haven’t announced that will dramatically affect the 2015 selling season, no. What we do mean by continuing to emphasize those is they fully haven’t fully played out in the market place and they’re still gaining attraction. But we do have others that we’re going to be pushing forward hereon, but not in the time period that you’re asking about.

Okay. All right, and then lastly our favourite Kitchen Collection. I noticed that the gross margin has increased to a pretty highest level in five quarters, at least is 42.7%. Is that sustainable? Was there any one-off in that that really pushed that gross margin up.

No, I think it’s really the reverse of that –we had one offset that reduced the gross margin and when you have the contraction in the number of stores of quantity that we’ve had and have that need to sell off products secondly, we have changed the formats and the product lines to some degree. I think that’s pretty much behind this. But I would say your point that we have also got in place I think in an enhanced system for managing our gross product by product category in terms of insuring that mark downs and other promotional activities are at budgeted levels and not more than that, and so I feel that that’s a sound number that you’re looking at.

You have been true to your word of reducing stores. But I’m surprised that you didn’t call out any one time costs coming through. Thus one would think with a higher gross margin your operating profit would have been better. So are there some onetime charges coming through the, or any higher charges due to store closures or severance or what not – that maybe running through the [indiscernible]?

Nothing material. Yeah, there has been no material charges running through the current year, the current quarter.

Okay.

We got some charges in the fourth quarter of 2013, but nothing this year.

Got it, Okay. Well thank you very much. That’s all for me.

Okay, thanks a lot.

Thank you. You have no further questions at this time. But again ladies and gentlemen if you do wish to ask a question (operator instructions), thank you.

Okay, Christy, I think we’ve addressed the questions and you’ve given people the telephone number to call you. I repeat the number so that if there are additional questions people can be directly in touch with you. but I think we’ll conclude now.

Okay, thank you for joining us today. We do appreciate your interest and if you do have any future or additional questions please give me a call. My number is 440-229-5130.

Thanks very much everybody.

Thank you, ladies and gentlemen, I would now like to advise with the dialling detail of the replay service of this presentation which will be available to your cells until the 8th of August, 2014. The dialling details are as follows; if you’d like to use the U.S toll free number, the number is 1888-286-8010. This also is the U.S international direct number, which is 001-617-801-6888 and the replay code that you will need to enter to listen to the replay is 788-64118. I repeat 788-64118. Thank you for your participation in today’s conference. This thus concludes the presentation. You may now disconnect. Have a good day, thank you.