Good day, ladies and gentlemen. And thank you for standing by. Welcome to the NACCO Industries 2015 First Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference is being recorded. I would now like to hand the conference over to Christina Kmetko, of Investor Relations. Please go ahead.

Thank you. Good morning, everyone and welcome to our 2015 first quarter earnings call. I am Christina Kmetko and I am responsible for Investor Relations at NACCO Industries. I will be providing a brief overview of our quarterly results and business outlook and then I will open up the call for your questions. 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 first quarter 2015 results and filed our 10-Q for the three months ended March 31, 2015. Also copies of our earnings release and 10-Q are available on our website at nacco.com. For anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months.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 regarding these risks and uncertainties was set forth in our earnings release and in our Q. Also certain amounts discussed during today's call are considered non-GAAP. The non-GAAP reconciliations of these amounts are included in our 2015 first quarter earnings release available on our website. Now let's discuss the quarterly results. Results in this quarter were in improvement over the last year’s…

[Operator Instructions] Our first question comes from the line of [indiscernible].

I have a question regarding the SG&A at the mining business. So when I look at the 10-K and also the 10-Q there is - the summarized financial information for the unconsolidated mines and that shows, it shows a difference between gross profits and income before taxes of about $5 million a quarter or $26 million for all of last year. Is that SG&A expense or is that mostly interest or what makes up those costs?

I’ll ask Elizabeth to comment what’s in there but it is not all SG&A, there is also I believe some royalty income in that number. Elizabeth, do you want to elaborate please.

I was having troubling hearing, which number you are referring to?

So I’m looking at - so I’m trying to figure out how much an SG&A is actually already in the financial statements for the unconsolidated mines before it gets past through to the - to NACCO to the consolidated financial statements. And so I'm looking at, 1ooking at 10-K when it has the financial statements of the unconsolidated time, it shows revenues and gross profits and then operating income. And the differences about like $26 million or something like that - $26 million. And so I was just wondering if that was SG&A or that was - or what that was, if it was interest?

I think it will be more interest, it would be interest expenses while yes, it would be interest expense.

So is there, so -

If you look at the reconciliation to North American Coal operating profits, SG&A for the coal business is called out, it’s the last page in the earnings release. I believe it's called Page 13 and you’ll see there is a very explicit number there for SG&A.

Okay. So I guess - that’s kind of my question. So that SG&A number is - last quarter it was $7.76 million, that SG&A is essentially the SG&A cost to run the entire coal business not just the consolidated mine. Is that correct?

That's correct.

Okay. So if you guys were trying to say sales or unconsolidated mines or something, you would have to - the buyer would be looking at that number and trying to allocate some of that SG&A to the unconsolidated mines?

No, the SG&A affiliated with the unconsolidated mines is all paid by those customers as per the terms of those contracts. The SG&A which you see on this Page 13, is the SG&A that's required to run North American Coal separate from the SG&A that's dedicated to each on of those mines, the unconsolidated mines.

So it’s the corporate expense, corporate SG&A of North American Coal.

Okay. So I guess that leads me to another question, which is that - if that - if the SG&A to run unconsolidated mines is paid for by those customers, then that means that the SG&A that you guys show in the earnings release is basically just to run the consolidated mining operations and -

I wouldn’t draw that conclusion at all.

Okay.

It’s not what it says and it’s not what we do. What we have are certain contractual rights to receive certain SG&A from individual mines and pass through certain kinds of costs that might otherwise be considered SG&A. But this is collectively what it takes to run all of our mines at the businesses excluding direct cost at each mine including the kinds of SG&A that are directly involved in the over site of the mines which are paid by the customers, but are paid very much pursuant to contract structure.

Okay. So the contracts allow you to get paid some SG&A that’s like directly involved with the day-to-day moving of rock around, but there is other stuff at the corporate level that you need the customer have to pay for but that's required nonetheless and that pertains also to the unconsolidated line?

And it does include some allocation of the NACCO SG&A as well, which is all essentially allocated to our individual operating subsidiaries.

Okay, great. Thanks a lot. I'll let someone else ask something.

Thank you. And our next question comes from the line of Brian Leonard from Keeley Asset Management.

Good morning. I have a handful of questions. So staying on the coal, North America, North American more specifically Centennial given the reduction in CapEx which is good to see especially they are down to $1.6 million, what type of cash flow or even free cash flow do you now expect kind of for the year, give some kind of language is there anything you can firm up for us?

I think we've said all that we have an intention of saying which is that we will not be cash positive in 2015. There will be some substantial cash losses associated both with the mining operations at Centennial and also with reclamation work that will largely be completed in the course of 2015 and I think that kind of lays out the picture. But we do state that it’s going to be significantly improved from 2014 levels, it will be significantly improved and we see the opportunity for further improvement in 2016, that is the limit of what we’re prepared to say to say at this point.

Okay. I get that. But is it going to be significantly improve because of the improved performance at Mississippi Lignite or it is improved Centennial as well?

Those are comments about Centennial, they’re directly in the earnings release and they relate to the Centennial program.

Okay, very good. Secondly you guys kind of think that 2016 will be a little bit better, if conditions don’t deteriorate if what to say they do because the coal market is not doing all that great now?

You’re talking about the Centennial specifically, is that right?

Yes that is correct, Centennial specifically and the met coal market. Why not closed because you’re going down from three areas to one, why not just close down to zero and then reopen at later date, is there a lot harder than anticipating it to be, can you kind of walk through why not to go to zero just by on the spot?

We believe that we have the most thoughtful program for minimizing cash losses and maximizing the opportunity for cash gains in the future at the moment. But we and our board consider any changes in the circumstances that may come about as assumptions that we make about the future change and as you might imagine at Centennial, the assumptions have been changing at a certainly unanticipatedly rapid rate in the past and we keep discussing those and we will consider all options but we’ve laid out for you what our plan is as we see circumstances at the moment.

So based on what you said is it fair to conclude that if conditions do continue to deteriorate rapidly that closing of the mine is on the table?

I just wouldn't speculate at this point. Everything would depend on how much, if there was zero volume you have to close it. If there is an appropriate level you would not close it as long as the prices were appropriate and what we’ve given you is our best judgment and comments at this point about how we see the situation and as we suggest also it’s very difficult to look far into the future at this point in the Centennial marketplace and we’re just not going to speculate anymore. We will update you quarter-by-quarter on our perspective just as we are this quarter and just as we did in the final quarter of 2014.

Okay. Fair enough. Moving onto Hamilton Beach, you guys talked about currency as being headwind, is there any way to breakout what impact it would have on results, I’m assuming it was pretty significant given the amount of international sales you have?

Well it is pretty significant as relative paying and furthermore, you should understand that our convention will commence on foreign currency is that we take the currency rates, interlocking rates at the end of each quarter and we assume that there will be the rates for the remainder of the year. We do not make independent assumptions on further changes one way or the other in currency rates and so our comments are restricted to what we have said. Certainly as you know the dollar at 331 was at a period of almost maximum strength and so we will just have to see what happens. To some degree we can recover currency exchange cost through pricing but certainly not fully and certainly with some kind of lag over time. We take all those into account and try to adjust our prices accordingly and I think we that is about we are prepared to say at this point.

Yes given the quarter was fantastic at Hamilton Beach 18% even without Weston that my guess is that it would be much higher than that given where the strength of the dollar was given seasonally weak quarter?

I think it’s fair to say that we added with Weston a business that has a seasonally weak quarter and therefore the operating profit in the remainder of the business increased somewhat more than the operating profit overall. We continue to feel that Weston is an extremely good fit for the company and as we laid out in the fourth quarter we see a synergy opportunities that we hope to be capturing later on this year. Those are things that obviously don’t happen overnight, it takes a period of time to work through all these use of products from Weston in our core business, use of core products in the Weston business, cost reductions of various kinds and efficiency. So there are whole variety of things we’re working on including new customers for the core Weston business but so far we think it’s a very good fit for us.

Foreign currency impact on revenues and operating profit year-over-year as disclosed in the MD&A table if you wanted to refer to that as well.

It is okay.

Why don’t you if you want to mention that number that is fine.

It was a $2 million impact negative on revenue and $700,000 impact on operating profit year-over-year negative and then there were some additional impact below operating profit that we did not disclosed that number though.

Very good. Thank you. Just couple more, given the how the year is going to progress and kind of the outlook that you have. How should we think about the cadence of the cash balance on the balance sheet changing throughout the years, that can be build to the end, is there going to be kind of some normalization this year on the consolidated level?

You’re talking about a consolidated level?

In cash, yes.

Well as you know Kitchen Collection generates a lot of cash in the fourth quarter, Hamilton Beach is a significant cash generator in the third and fourth quarter particularly the fourth quarter. So those are very much back end loaded, the coal business not so much. We do have our continuing share repurchase program which is still open although the approved amount of that has is limited and the program will be completed at such time as those shares are repurchased. So that is obviously happening earlier in the year as opposed to later in the year and that is kind of the overall picture for you.

Okay. And on the buyback, you guys reported $6.9 million in the quarter, was the average price paid?

That's in the queue.

That's fine. I can look that up.

It's 56.76 per share.

Okay. Thank you. And then lastly the - on the debt reduction, at what point will we start seeing a reduction in the consolidated interest rate?

We don't have debt anywhere except at the end of the subsidiary. So I don’t think I would be inclined to think about it that way at all. Basically Kitchen Collection has debt during the year as working capital builds up and then its in a cash position. The Hamilton Beach has more debt during the middle part of the year and then it did generate a large reduction in working capital at the end which reduces it debt. And North American Coal of course as we say in the earning release at a very significant reduction in the first quarter and its working capital which was related to the permanent financing for the Coyote operation up there, and J.C. that was how much?

I think $33 million.

Correct. But wasn't that right on a consolidated revolver or where you guys paying interest on the - at the subsidiary level.

That was going to be consolidated. Well there is no consolidated revolver, its up in North America Coal revolver, that receivable was paid given the first quarter.

So the revolver at North American Coal went down significantly. We don't have - we have cash at the parent company level but we did not have debt at the current company level to all that is carried at the end of those subsidiary and backed by that subsidiary.

And all the subsidiary - let me say just the other way, there is none of the subsidiary debt that has guaranteed in any way by the parent company.

Right. Understand. But on the income statement you showed 2.125 million in interest expense. Where does that come from?

That comes from the interest on the debt at the individual subsidiaries.

So you reduced that by 53 million at the subsidiary North American Coal.

There are some things that are consolidated other than the three subsidiaries. We have subsidiary called Bellaire which owns assets of old mining operations and there is some interest associated with that then we don't show Bellaire as an independent company and it probably shows up on the parent company books. But again the parent company has no borrowings.

Okay. All right. Thank you very much. That does it for me.

[Operator Instructions] Our next question is a follow-up from the line of [indiscernible].

Hi, just a couple more questions from me. What is your outlook on royalty income. I understand it's not really in your guys hands but do you guys have a view on what its likely to do this year over the next few years?

J. C. you want to comment on royalty income?

It is not in our hands at all. We don’t try to forecast what it's going to be because it is entirely up to what others do, their own mining or in plans and we don’t forecast it.

I think it is fair to say that we had the benefit in the last few years of significant - some significant royalty payments from some entities that are unlikely to continue royalty payments at those levels in the future to some degree because the - for example the reserves are simply been used up. And so, we have the continuing development of sources of royalty and also the using up of these royalties since they are all from depleting resources. Again terms of the way they are generated. So it takes another coal mine our coal to generate revenue or oil and gas production on land where we own the oil and gas rights in order for us to receive those royalties and -

We also historically over the last couple of years have benefited from some significant onetime payments that - it’s impossible to predict when those might happen again.

Okay, thanks. Another question so Centennial has obviously been affected by the MATS legislation. Are you guys - I know basically all the other mines, including the consolidated mines, you guys have long-term contracts. But should we be scared about MATS affecting some of those other mines as well?

The only mining operation where we're affected in this way by the MATS rules is at the Alabama operations.

Okay. $but is that - that's the current situation or you are saying that you don’t expect the legislation to affect any of the other ones in the future as well?

We do not expect the regulations to affect any of the other mines.

Okay. I have a question on the asset retirement obligations. So in the 10-K there is it’s note 7 asset retirement obligation and it has - for NACCO consolidated that it has $41.8 million. And then in the 10-Q at least the capital structure NACCO's consolidated capital structure and it says Bellaire closed mine obligations net of tax and that has $15 million. So I guess I'm wondering where is the - does the other - does the non-Bellaire asset retirement obligations show up on the balance sheet somewhere?

They are on the balance sheet. Yes, they're on the balance sheet, in our - they’re in the mine closing reserves line, I’m sorry.

Mine closing reserve, okay got it, I see, and so that's 37 - $37.4 million and that's - I’m sure that's net of tax, okay.

Some of used in current.

It is in current I see, okay, that includes – that's basically - I don’t know much about how the accounting goes for that, but can I assume that that's basically your sort of best estimate as to the present value of the obligation so that you did a shot every single mine that's what that number represents?

Yes.

Okay. And one question with -

In that regard and Liz can address the accounting of this, but I think it's correct to say that asset determine obligations for closed mines are the responsibility of our customers in all cases except the Alabama operations. And even there, there are some where we have recourse against others for the mine closing obligations. So, I think that what I would suggest is if you want further information on those at some future time, perhaps you could get those from Elizabeth. Its a complicated area, but obviously we have to reflect the fact that those are closed eventually. But we do have a recourse to our customers to pay for most of that closing.

Okay. So that - so the $41 million -

Let me say that in that number you pointed to Bellaire, those are obligations that we have in addition to Alabama, but they are for already closed operations.

Right. But then so what you said at the rest of it, like basically you were saying that the unconsolidated mines are definitely not your obligation so -

That's correct.

Any asset retirement costs for the unconsolidated mines wouldn’t even be - they’re not even in that $41 million number right?

Correct.

Okay. And then one last question on or actually two questions on Hamilton Beach. So you said that the currency was like $700,000 or $800,000 hits for the operating profit and I think and I saw in the 10-Q that less than actually had an $800,000 loss. So does that mean that - so just doing the math on that, that ex those two things Hamilton Beach would have had a basically like more than $2 million or about $2 million profit I think or little bit more without those?

We got quite a bit of additional volume to 18% on that we put in the earnings release on a core Hamilton Beach business. And I think the currency goes below the operating profit line and what we said was, if there was a reduction in the increase from the core business of operating profit by the amount of the operating - seasonal operating loss that comes from the western business. So I might add that in addition to the seasonal loss, there is some element of acquisition accounting that also increases the near-term losses inventories are valued differently than they would be on an ongoing basis and so on so forth. The lot of technicalities which will roll through relatively quickly.

Okay. And that 18% -

Can I just clarify one thing. $700,000 impact that's the change year-over-year that's not the absolute number that impacted the quarter.

Okay.

That's somewhere about impacting operating profit. There is a component in operating profit and a component below operating profit.

Okay, got you. And so the 18% increase, is there any reason to think that the things driving that increase were sort of a one-off or is it or can we - I mean, do we think that they might continue for the rest of the year?

We feel very good about the rest of the year. I think we've indicated that we think we’ll have a very good year in both western and in the core business of Hamilton Beach. I think we went into the year in a very good position in terms of our customers inventories and so we were able to ship pretty much according to the sales REITs occurring at our retail customers. I’m not sure that that was quite the case in the year before. But it was a very good year, but I think it would be unrealistic to think that those kinds of increases are going to occur for the remaining parts of the year and we don’t suggest that in our outlook.

Okay. And then last question, the last two years that Hamilton Beach you guys saw pretty big cash outflows in Q1 that you hadn't seen for the rest of the decade essentially. Has something changed with the seasonality there or do you think that - was that just more random?

Are you comparing the year-to-year numbers is that why you’re making –

Yes, I'm looking at 2014 Q1 and 2015 Q1 you both had cash outflows.

Let me just note that in comparing the two years of course we had the Weston working capital in the first quarter of 2015, and we did not have Weston’s working capital in the first quarter of 2014. And I think we had the very good working capital results overall in the core part of the business. And so I think at Hamilton Beach we're basically in a very good position perhaps even a little bit improved in terms of day sales outstanding which is the way we really think about how we're managing those numbers.

Okay, great. Thank you. Thanks for taking so many questions.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Christina Kmetko, for any closing comments.

Thank you. Al, did you have anything you wanted to add before we close the call.

No it's fine, Christie. Thank you.

Okay, thank you. Thank you everyone for joining us today. We do appreciate your interest and if you do have any additional follow-up questions, you can reach out to me at 440-229-5130. Thanks so much.