Attached files

file filename
EX-95 - EXHIBIT 95 - NACCO INDUSTRIES INCexhibit95q215.htm
EX-31.1 - EXHIBIT 31.1 - NACCO INDUSTRIES INCexhibit311q215.htm
EX-32 - EXHIBIT 32 - NACCO INDUSTRIES INCexhibit32q215.htm
EX-31.2 - EXHIBIT 31.2 - NACCO INDUSTRIES INCexhibit312q215.htm

 
 
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 _______________________________________________________________________________________________________________________________________________________________________________________________________
FORM 10-Q
(Mark One)
 
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2015
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from                      to                     
Commission file number 1-9172
 
 
NACCO INDUSTRIES, INC.
 
 
 
 
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
 
DELAWARE 
 
34-1505819
 
 
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
 
 
5875 LANDERBROOK DRIVE, SUITE 220, CLEVELAND, OHIO 
 
44124-4069
 
 
(Address of principal executive offices)
 
(Zip code)
 
 
 
 
 
 
 
 
(440) 229-5151
 
 
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
 
N/A
 
 
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
 

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
 
Accelerated filer þ 
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 

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

Number of shares of Class A Common Stock outstanding at July 31, 2015: 5,379,848
Number of shares of Class B Common Stock outstanding at July 31, 2015: 1,572,627




NACCO INDUSTRIES, INC.
TABLE OF CONTENTS

 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


Part I
FINANCIAL INFORMATION
Item 1. Financial Statements

NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
JUNE 30
2015
 
DECEMBER 31
2014
 
JUNE 30
2014
 
(In thousands, except share data)
ASSETS
 

 
 
 
 
Cash and cash equivalents
$
19,323

 
$
61,135

 
$
60,907

Accounts receivable, net
88,295

 
123,466

 
85,001

Accounts receivable from affiliates
3,137

 
57,421

 
36,351

Inventories, net
203,167

 
190,382

 
188,148

Deferred income taxes
19,705

 
18,566

 
12,740

Prepaid expenses and other
25,977

 
14,743

 
23,195

Total current assets
359,604

 
465,713

 
406,342

Property, plant and equipment, net
154,020

 
159,644

 
254,362

Goodwill
6,253

 
6,253

 

Other Intangibles, net

58,786

 
60,821

 
57,929

Deferred income taxes
11,775

 
15,806

 
1,324

Other non-current assets
60,961

 
62,283

 
68,836

Total assets
$
651,399

 
$
770,520

 
$
788,793

LIABILITIES AND EQUITY
 

 
 
 
 
Accounts payable
$
116,246

 
$
133,668

 
$
99,319

Revolving credit agreements of subsidiaries - not guaranteed by the parent company
11,340

 
55,000

 
74,524

Current maturities of long-term debt of subsidiaries - not guaranteed by the parent company
1,485

 
1,467

 
7,877

Accrued payroll
29,484

 
23,567

 
14,837

Other current liabilities
34,248

 
40,979

 
37,868

Total current liabilities
192,803

 
254,681

 
234,425

Long-term debt of subsidiaries - not guaranteed by the parent company
166,239

 
191,431

 
147,257

Mine closing reserves
38,320

 
37,399

 
35,930

Pension and other postretirement obligations
9,831

 
10,616

 
7,355

Deferred income taxes

 

 
23,026

Other long-term liabilities
52,112

 
64,919

 
66,013

Total liabilities
459,305

 
559,046

 
514,006

Stockholders' equity
 

 
 
 
 
Common stock:
 

 
 
 
 
Class A, par value $1 per share, 5,407,112 shares outstanding (December 31, 2014 - 5,662,214 shares outstanding; June 30, 2014 - 6,046,238 shares outstanding)
5,407

 
5,662

 
6,046

Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,572,627 shares outstanding (December 31, 2014 - 1,573,292 shares outstanding; June 30, 2014 - 1,580,590 shares outstanding)
1,573

 
1,573

 
1,581

Retained earnings
206,400

 
224,428

 
279,922

Accumulated other comprehensive loss
(21,286
)
 
(20,189
)
 
(12,762
)
Total stockholders' equity
192,094

 
211,474

 
274,787

Total liabilities and equity
$
651,399

 
$
770,520

 
$
788,793


See notes to Unaudited Condensed Consolidated Financial Statements.

2


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share data)
Revenues
$
196,500

 
$
200,370

 
$
390,234

 
$
377,783

Cost of sales
161,119

 
163,847

 
316,664

 
305,089

Gross profit
35,381

 
36,523

 
73,570

 
72,694

Earnings of unconsolidated mines
12,076

 
11,567

 
24,629

 
24,005

Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
45,219

 
50,990

 
91,635

 
99,419

Amortization of intangible assets
950

 
991

 
2,035

 
1,756

 
46,169

 
51,981

 
93,670

 
101,175

Operating profit (loss)
1,288

 
(3,891
)
 
4,529

 
(4,476
)
Other expense (income)
 

 
 
 
 
 
 
Interest expense
1,661

 
1,950

 
3,786

 
3,404

Income from other unconsolidated affiliates
(300
)
 
420

 
(1,472
)
 
32

Closed mine obligations
425

 
308

 
827

 
624

Other, net, including interest income
(167
)
 
(273
)
 
312

 
(151
)
 
1,619

 
2,405

 
3,453

 
3,909

Income (loss) before income tax provision (benefit)
(331
)
 
(6,296
)
 
1,076

 
(8,385
)
Income tax provision (benefit)
(56
)
 
(2,672
)
 
324

 
(3,237
)
Net income (loss)
$
(275
)
 
$
(3,624
)
 
$
752

 
$
(5,148
)
 
 

 
 
 
 
 
 
Basic earnings (loss) per share
$
(0.04
)
 
$
(0.47
)
 
$
0.11

 
$
(0.66
)
Diluted earnings (loss) per share
$
(0.04
)
 
$
(0.47
)
 
$
0.11

 
$
(0.66
)
 
 
 
 
 
 
 
 
Dividends per share
$
0.2625

 
$
0.2575

 
$
0.5200

 
$
0.5075

 
 

 
 
 
 
 
 
Basic weighted average shares outstanding
7,048

 
7,712

 
7,114

 
7,777

Diluted weighted average shares outstanding
7,048

 
7,712

 
7,129

 
7,777


See notes to Unaudited Condensed Consolidated Financial Statements.

3


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Net income (loss)
$
(275
)
 
$
(3,624
)
 
$
752

 
$
(5,148
)
Foreign currency translation adjustment
(339
)
 
258

 
(1,162
)
 
84

Deferred gain (loss) on available for sale securities
(14
)
 
174

 
24

 
237

Current period cash flow hedging activity, net of $50 and $370 tax benefit in the three and six months ended June 30, 2015, respectively, and $583 and $808 tax benefit in the three and six months ended June 30, 2014, respectively.
(63
)
 
(1,043
)
 
(658
)
 
(1,450
)
Reclassification of hedging activities into earnings, net of $38 and $137 tax benefit in the three and six months ended June 30, 2015, respectively, and $91 and $187 tax benefit in the three and six months ended June 30, 2014, respectively.

89

 
173

 
274

 
353

Reclassification of pension and postretirement adjustments into earnings, net of $95 and $203 tax benefit in the three and six months ended June 30, 2015, respectively, and $77 and $160 tax benefit in the three and six months ended June 30, 2014, respectively.

166

 
115

 
425

 
273

Total other comprehensive loss
$
(161
)
 
$
(323
)
 
$
(1,097
)
 
$
(503
)
Comprehensive loss
$
(436
)
 
$
(3,947
)
 
$
(345
)
 
$
(5,651
)

See notes to Unaudited Condensed Consolidated Financial Statements.


4


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
SIX MONTHS ENDED
 
JUNE 30
 
2015
 
2014
 
(In thousands)
Operating activities
 

 
 
Net income (loss)
$
752

 
$
(5,148
)
Adjustments to reconcile from net income (loss) to net cash provided by (used for) operating activities:
 

 
 
Depreciation, depletion and amortization
11,559

 
12,597

Amortization of deferred financing fees
790

 
270

Deferred income taxes
2,892

 
(248
)
Other
(6,922
)
 
7,569

Working capital changes:
 

 
 
Accounts receivable
89,406

 
31,466

Inventories
(12,785
)
 
(3,723
)
Other current assets
(1,860
)
 
(1,576
)
Accounts payable
(16,465
)
 
(33,695
)
Other current liabilities
(10,814
)
 
(16,172
)
Income taxes receivable/payable
(6,672
)
 
(12,752
)
Net cash provided by (used for) for operating activities
49,881

 
(21,412
)
 
 

 
 
Investing activities
 

 
 
Expenditures for property, plant and equipment
(4,152
)
 
(41,180
)
Other
1,088

 
380

Net cash used for investing activities
(3,064
)
 
(40,800
)
 
 

 
 
Financing activities
 

 
 
Additions to long-term debt
2,047

 
1,553

Reductions of long-term debt
(728
)
 
(1,710
)
Net additions (reductions) to revolving credit agreements
(70,153
)
 
46,063

Cash dividends paid
(3,688
)
 
(3,957
)
Purchase of treasury shares
(16,009
)
 
(14,247
)
Other
(42
)
 
2

Net cash provided by (used for) financing activities
(88,573
)
 
27,704

 
 

 
 
Effect of exchange rate changes on cash
(56
)
 
25

Cash and cash equivalents
 

 
 
Decrease for the period
(41,812
)
 
(34,483
)
Balance at the beginning of the period
61,135

 
95,390

Balance at the end of the period
$
19,323

 
$
60,907


See notes to Unaudited Condensed Consolidated Financial Statements.

5


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
Class A Common Stock
Class B Common Stock
Capital in Excess of Par Value
Retained Earnings
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Available for Sale Securities
Deferred Gain (Loss) on Cash Flow Hedging
Pension and Postretirement Plan Adjustment
 
Total Stockholders' Equity
 
(In thousands, except per share data)
Balance, January 1, 2014
$
6,290

$
1,581

$
941

$
301,227

 
$
(803
)
 
$
1,021

 
$
676

 
$
(13,153
)
 
$
297,780

Stock-based compensation
22


840


 

 

 

 

 
862

Purchase of treasury shares
(266
)

(1,781
)
(12,200
)
 

 

 

 

 
(14,247
)
Net loss



(5,148
)
 

 

 

 

 
(5,148
)
Cash dividends on Class A and Class B common stock: $0.5075 per share



(3,957
)
 

 

 

 

 
(3,957
)
Current period other comprehensive income (loss)




 
84

 
237

 
(1,450
)
 

 
(1,129
)
Reclassification adjustment to net income (loss)




 

 

 
353

 
273

 
626

Balance, June 30, 2014
$
6,046

$
1,581

$

$
279,922

 
$
(719
)
 
$
1,258

 
$
(421
)
 
$
(12,880
)
 
$
274,787

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2015
$
5,662

$
1,573

$

$
224,428

 
$
(2,699
)
 
$
1,463

 
$
56

 
$
(19,009
)
 
$
211,474

Stock-based compensation
37


625


 

 

 

 

 
662

Purchase of treasury shares
(292
)

(625
)
(15,092
)
 

 

 

 

 
(16,009
)
Net income



752

 

 

 

 

 
752

Cash dividends on Class A and Class B common stock: $0.5200 per share



(3,688
)
 

 

 

 

 
(3,688
)
Current period other comprehensive income (loss)




 
(1,162
)
 
24

 
(658
)
 

 
(1,796
)
Reclassification adjustment to net income (loss)




 

 

 
274

 
425

 
699

Balance, June 30, 2015
$
5,407

$
1,573

$

$
206,400

 
$
(3,861
)
 
$
1,487

 
$
(328
)
 
$
(18,584
)
 
$
192,094


See notes to Unaudited Condensed Consolidated Financial Statements.

6


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2015
(In thousands, except as noted and per share amounts)

NOTE 1—Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. The Company's subsidiaries operate in the following principal industries: mining, small appliances and specialty retail. The Company manages its subsidiaries primarily by industry.
 
The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at June 30, 2015 and the results of its operations, comprehensive income (loss), cash flows and changes in equity for the six months ended June 30, 2015 and 2014 have been included. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The balance sheet at December 31, 2014 has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. GAAP for complete financial statements.

Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2015. The HBB and KC businesses are seasonal and a majority of revenues and operating profit typically occurs in the second half of the calendar year when sales of small electric household appliances to retailers and consumers increase significantly for the fall holiday selling season. For further information regarding seasonality of these businesses, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

NOTE 2—Recently Issued Accounting Standards

Accounting Standards Not Yet Adopted: In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of ASU 2014-09 until fiscal years, and interim periods within those years, beginning after December 15, 2017. The guidance is to be applied retrospectively, with early application permitted to the original effective date of December 15, 2016. The Company is currently assessing the impact of implementing this guidance on the Company's financial position, results of operations, cash flows and related disclosures.  

In August 2014, the FASB issued ASU No. 2014-15, "Preparation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that financial statements are issued.  ASU 2014-15 is effective for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is

7


permitted. The Company does not expect the adoption of this guidance to have an effect on the Company's financial position, results of operations, cash flows or related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest," to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early application is permitted. The Company does not expect the adoption of this guidance to have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.

In July 2015, the FASB issued ASU No. 2015-11, "Inventory - Simplifying the Measurement of Inventory," to simplify the measurement of inventory by requiring that inventory be measured at lower of cost or net realizable value. ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. The Company is currently assessing the impact of implementing this guidance on the Company's financial position, results of operations, cash flows and related disclosures.  

NOTE 3—Inventories

Inventories are summarized as follows:

 
JUNE 30
2015
 
DECEMBER 31
2014
 
JUNE 30
2014
Coal - NACoal
$
25,235

 
$
29,576

 
$
24,377

Mining supplies - NACoal
20,727

 
19,774

 
19,659

Total inventories at weighted average cost
45,962

 
49,350

 
44,036

Sourced inventories - HBB
116,368

 
104,746

 
97,545

Retail inventories - KC
40,837

 
36,286

 
46,567

Total inventories at FIFO
157,205

 
141,032

 
144,112

 
$
203,167

 
$
190,382

 
$
188,148



NOTE 4—Stockholders' Equity

Stock Repurchase Program: On November 12, 2013, the Company's Board of Directors approved a stock repurchase program (the "2013 Stock Repurchase Program") providing for the purchase of up to $60 million of the Company's Class A Common Stock outstanding through December 31, 2015. The timing and amount of any repurchases under the 2013 Stock Repurchase Program are determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company's Class A Common Stock. The 2013 Stock Repurchase Program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2013 Stock Repurchase Program may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be prevented from doing so under applicable securities laws.

During the three months ended June 30, 2015 and June 30, 2014, the Company repurchased 170,960 and 175,359 shares of Class A Common Stock for an aggregate purchase price of $9.1 million and $9.3 million under the 2013 Stock Repurchase Program at a weighted average purchase price of $53.22 and $52.82 per share, respectively. During the six months ended June 30, 2015 and June 30, 2014, the Company repurchased 292,723 and 266,337 shares of Class A Common Stock for an aggregate purchase price of $16.0 million and $14.2 million under the 2013 Stock Repurchase Program at a weighted average purchase price of $54.69 and $53.49 per share.


Amounts Reclassified out of Accumulated Other Comprehensive Income (Loss): The following table summarizes the amounts reclassified out of Accumulated other comprehensive income (loss) ("AOCI") and recognized in the Unaudited Condensed Consolidated Statements of Operations:

 
 
Amount Reclassified from AOCI
 
 
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
 
 
June 30
 
June 30
 
Details about AOCI Components
 
2015
 
2014
 
2015
 
2014
Location of (gain) loss reclassified from AOCI into income (loss)
(Gain) loss on cash flow hedging
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
(235
)
 
$
(114
)
 
$
(320
)
 
$
(202
)
Cost of sales
Interest rate contracts
 
362

 
378

 
731

 
742

Interest expense
 
 
127

 
264

 
411

 
540

Total before income tax benefit
 
 
(38
)
 
(91
)
 
(137
)
 
(187
)
Income tax benefit
 
 
$
89

 
$
173

 
$
274

 
$
353

Net of tax
 
 
 
 
 
 
 
 
 
 
Pension and postretirement plan
 
 
 
 
 
 
 
 
 
Actuarial loss
 
$
276

 
$
209

 
$
657

 
$
469

(a) 
Prior-service credit
 
(15
)
 
(17
)
 
(29
)
 
(36
)
(a) 
 
 
261

 
192

 
628

 
433

Total before income tax benefit
 
 
(95
)
 
(77
)
 
(203
)
 
(160
)
Income tax benefit
 
 
$
166

 
$
115

 
$
425

 
$
273

Net of tax
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
255

 
$
288

 
$
699

 
$
626

Net of tax

(a) These AOCI components are included in the computation of pension and postretirement health care (income) expense. See Note 10 for further discussion.



8




NOTE 5—Fair Value Disclosure

Recurring Fair Value Measurements: The following table presents the Company's assets and liabilities accounted for at fair value on a recurring basis:

 
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
 
Active Markets for
 
Significant Other
 
Unobservable
 
 
 
 
Identical Assets
 
Observable Inputs
 
Inputs
Description
 
Date
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
June 30, 2015
 
 
 
 
 
 
Assets:
 

 
 
 
 
 
 
Available for sale securities
 
$
7,256

 
$
7,256

 
$

 
$

Interest rate swap agreements
 
30

 

 
30

 

Foreign currency exchange contracts
 
240

 

 
240

 

 
 
$
7,526

 
$
7,256

 
$
270

 
$

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
951

 
$

 
$
951

 
$

 
 
$
951

 
$

 
$
951

 
$

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Available for sale securities
 
$
7,220

 
$
7,220

 
$

 
$

Interest rate swap agreements
 
181

 

 
181

 

Foreign currency exchange contracts
 
292

 

 
292

 

 
 
$
7,693

 
$
7,220

 
$
473

 
$

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements

 
$
412

 
$

 
$
412

 
$

 
 
$
412

 
$

 
$
412

 
$

 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Available for sale securities
 
$
6,906

 
$
6,906

 
$

 
$

Interest rate swap agreements
 
278

 

 
278

 

 
 
$
7,184

 
$
6,906

 
$
278

 
$

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
602

 
$

 
$
602

 
$

Foreign currency exchange contracts

 
393

 

 
393

 

Contingent consideration
 
1,597

 

 

 
1,597

 
 
$
2,592

 
$

 
$
995

 
$
1,597


Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. In connection with Bellaire's normal permit renewal with the Pennsylvania Department of Environmental Protection ("DEP"), Bellaire established a $5.0 million mine water treatment trust (the "Mine Water Treatment Trust") to provide a financial assurance mechanism in order to assure the long-term treatment of post-mining discharges. Bellaire's Mine Water Treatment Trust invests in available for sale securities that are reported at fair value based upon quoted market prices in active markets for identical assets; therefore, they are classified as Level 1 within the fair value hierarchy.


9


The Company uses significant other observable inputs to value derivative instruments used to hedge foreign currency and interest rate risk; therefore, they are classified within Level 2 of the valuation hierarchy. The fair value for these contracts is determined based on exchange rates and interest rates, respectively.

There were no transfers into or out of Levels 1, 2 or 3 during the three and six months ended June 30, 2015 and 2014.

Other Fair Value Measurement Disclosures: The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term nature of these instruments. Revolving credit agreements and long-term debt are recorded at carrying value in the Unaudited Condensed Consolidated Balance Sheets. The fair value of revolving credit agreements approximates their carrying value as the stated rates of the debt reflect recent market conditions. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. At June 30, 2015, December 31, 2014 and June 30, 2014, both the fair value and the book value of the Company's revolving credit agreements and long-term debt, excluding capital leases, was $168.2 million, $236.3 million and $217.3 million, respectively.


NOTE 6—Unconsolidated Subsidiaries

NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Centennial Natural Resources ("Centennial"), and provides dragline mining services for independently owned limerock quarries in Florida. NACoal also has the following wholly owned unconsolidated subsidiaries that each meet the definition of a variable interest entity and are accounted for using the equity method:

The Coteau Properties Company ("Coteau")
The Falkirk Mining Company ("Falkirk")
The Sabine Mining Company ("Sabine")
Demery Resources Company, LLC (“Demery”)
Caddo Creek Resources Company, LLC (“Caddo Creek”)
Coyote Creek Mining Company, LLC (“Coyote Creek”)
Camino Real Fuels, LLC (“Camino Real”)
Liberty Fuels Company, LLC (“Liberty”)
NoDak Energy Services, LLC ("NoDak")

The unconsolidated subsidiaries, with the exception of NoDak (collectively, the "Unconsolidated Mines"), were formed to develop, construct and operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. Coteau, Falkirk, Sabine, Liberty and Coyote supply or will supply lignite coal for power generation. Demery and Caddo Creek supply lignite coal for the production of activated carbon. Camino Real will supply sub-bituminous coal for power generation. NoDak operates and maintains a coal processing facility.

The contracts with the customers of the Unconsolidated Mines provide for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. Although NACoal owns 100% of the equity and manages the daily operations of these entities, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The customers have a controlling financial interest and have the power to direct the activities that most significantly affect the economic performance of the entities. As a result, NACoal is not the primary beneficiary and, therefore, does not consolidate these entities' financial positions or results of operations. The income taxes resulting from the operations of the Unconsolidated Mines are solely the responsibility of the Company. The pre-tax income from the Unconsolidated Mines is reported on the line “Earnings of unconsolidated mines” in the Unaudited Condensed Consolidated Statements of Operations, with related income taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Mines above operating profit because they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "(Income) loss from other unconsolidated affiliates" in the "Other expense (income)" section of the Unaudited Condensed Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes.

North American Coal Corporation India Private Limited ("NACC India") was formed to provide technical business advisory services to the third-party owner of a coal mine in India.  During the third quarter of 2014, NACC India's customer defaulted on its contractual payment obligations and as a result of this default, NACC India has terminated its contract with the customer

10


and is pursuing contractual remedies. Prior to contract termination, NACC India met the definition of a variable interest entity of which NACoal was not the primary beneficiary and was accounted for using the equity method with net income or loss reported on the line "(Income) loss from other unconsolidated affiliates" in the "Other expense (income)" section of the Consolidated Statements of Operations. Subsequent to contract termination, NACC India is no longer a variable interest entity and its financial position and results of operations are consolidated by NACoal as of the contract termination date. 

The investments in the Unconsolidated Mines and related tax positions totaled $27.1 million, $28.2 million and $30.3 million at June 30, 2015, December 31, 2014 and June 30, 2014, respectively. These amounts are included on the line “Other Non-current Assets” in the Unaudited Condensed Consolidated Balance Sheets. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $4.0 million at both June 30, 2015 and December 31, 2014, and $4.5 million at June 30, 2014.

Included in "Accounts receivable from affiliates" was $53.2 million and $32.5 million as of December 31, 2014 and June 30, 2014, respectively, due from Coyote Creek, primarily for the purchase of a dragline from NACoal and mine development. Coyote Creek repaid NACoal the amount outstanding during the first quarter of 2015 as a result of Coyote Creek’s completion of third-party financing. 

NACoal is a party to certain guarantees related to Coyote Creek. Under certain circumstances of default or termination of Coyote Creek’s Lignite Sales Agreement (“LSA”), NACoal would be obligated for payment of a "make-whole" amount to Coyote Creek’s third party lenders. The “make-whole” amount is based on the excess, if any, of the discounted value of the remaining scheduled debt payments over the principal amount. In addition, in the event Coyote Creek’s LSA is terminated on or after January 1, 2024 by Coyote Creek’s customers, NACoal is obligated to purchase Coyote Creek’s dragline and rolling stock for the then net book value of those assets. To date, no payments have been required from NACoal since the inception of these guarantees. The Company believes that the likelihood of NACoal’s future performance under the guarantees is remote, and no amounts related to these guarantees have been recorded.

Summarized financial information for the unconsolidated subsidiaries is as follows:
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2015
 
2014
 
2015
 
2014
Revenues
$
155,103

 
$
148,075

 
$
303,174

 
$
286,598

Gross profit
$
18,068

 
$
17,126

 
$
36,946

 
$
36,619

Income before income taxes
$
12,531

 
$
10,994

 
$
25,650

 
$
24,162

Net income
$
9,563

 
$
8,530

 
$
19,718

 
$
18,674



NOTE 7—Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, patent infringement, asbestos-related claims, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. The Company's policy is to expense legal fees as services are rendered and to accrue for liabilities when losses are probable and reasonably estimable. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that material losses will be incurred in excess of accruals already recognized.

HBB is investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, HBB estimates the total investigation and remediation costs and the period of assessment and remediation activity required for each site. The estimate of future investigation and remediation costs is primarily based on variables associated with site clean-up, including, but not limited to, physical characteristics of the site, the nature and extent of the contamination and applicable regulatory programs and remediation standards. No assessment can fully characterize all subsurface conditions at a site. There is no assurance that additional assessment and remediation efforts will not result in adjustments to estimated remediation costs or the time frame for remediation at these sites.


11


HBB's estimates of investigation and remediation costs may change if it discovers contamination at additional sites or additional contamination at known sites, if the effectiveness of its current remediation efforts change, if applicable federal or state regulations change or if HBB's estimate of the time required to remediate the sites changes. HBB's revised estimates may differ materially from original estimates.

At June 30, 2015, December 31, 2014 and June 30, 2014, HBB had accrued undiscounted obligations of $9.3 million, $9.7 million and $10.3 million, respectively, for environmental investigation and remediation activities. In addition, HBB estimates that it is reasonably possible that it may incur additional expenses in the range of zero to $4.9 million related to the environmental investigation and remediation at these sites. During the three and six months ended June 30, 2014, HBB recorded a $3.3 million charge to increase the liability for environmental investigation and remediation activities at the Picton, Ontario facility as a result of an environmental study performed in the second quarter of 2014.

NOTE 8—Product Warranties

HBB provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HBB's customer, the retailer. Generally, the retailer returns those products to HBB for a credit. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.

Changes in the Company's current and long-term recorded warranty liability are as follows:
 
2015
Balance at January 1
$
5,856

Warranties issued
4,383

Settlements made
(5,025
)
Balance at June 30
$
5,214



NOTE 9—Income Taxes

The income tax provision includes U.S. federal, state and local, and foreign income taxes and is based on the application of a forecasted annual income tax rate applied to the current quarter's year-to-date pre-tax income or loss. In determining the estimated annual effective income tax rate, the Company analyzes various factors, including projections of 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 and 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 estimated effective annual income tax rate.

The effective income tax rates for the three and six months ended June 30, 2015 were 16.9% and 30.1%, respectively. Discrete tax items impacting the three and six months ended June 30, 2015 were not significant. The effective income tax rates for the three and six months ended June 30, 2014 were 42.4% and 38.6%, respectively. These rates were impacted by net favorable discrete tax items totaling $1.4 million in the three and six months ended June 30, 2014 primarily resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations.


12


NOTE 10—Retirement Benefit Plans

The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. The Company's policy is to make contributions to fund these plans within the range allowed by applicable regulations. Plan assets consist primarily of publicly traded stocks and government and corporate bonds. Pension benefits were frozen for all employees effective as of the close of business on December 31, 2013. All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The Company also maintains postretirement health care plans which provide benefits to eligible retired employees. All health care plans of the Company have 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 components of pension and postretirement health care expense (income) are set forth below:

 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2015
 
2014
 
2015
 
2014
U.S. Pension and Postretirement Health Care
 
 
 
 
 
 
 
Service cost
$
18

 
$
17

 
$
35

 
$
35

Interest cost
673

 
695

 
1,390

 
1,489

Expected return on plan assets
(1,205
)
 
(1,141
)
 
(2,482
)
 
(2,408
)
Amortization of actuarial loss
274

 
190

 
585

 
434

Amortization of prior service credit
(15
)
 
(17
)
 
(29
)
 
(36
)
Total
$
(255
)
 
$
(256
)
 
$
(501
)
 
$
(486
)
Non-U.S. Pension
 
 
 
 
 
 
 
Interest cost
$
40

 
$
50

 
$
79

 
$
99

Expected return on plan assets
(71
)
 
(75
)
 
(141
)
 
(149
)
Amortization of actuarial loss
12

 
19

 
23

 
35

Total
$
(19
)
 
$
(6
)
 
$
(39
)
 
$
(15
)



13


NOTE 11—Business Segments

NACCO is a holding company with the following principal subsidiaries: NACoal, HBB and KC. See Note 1 for a discussion of the Company's industries and product lines. NACCO's non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of the Company.
 
Financial information for each of NACCO's reportable segments is presented in the following table. The line “Eliminations” in the Revenues section eliminates revenues from HBB sales to KC. The amounts of these revenues are based on current market prices of similar third-party transactions. No other sales transactions occur among reportable segments.
 
THREE MONTHS ENDED
 
SIX MONTHS ENDED
 
JUNE 30
 
JUNE 30
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 
 
NACoal
$
37,942

 
$
49,780

 
$
79,261

 
$
89,652

HBB
129,498

 
118,385

 
252,791

 
219,710

KC
29,782

 
32,804

 
59,749

 
69,680

Eliminations
(722
)
 
(599
)
 
(1,567
)
 
(1,259
)
Total
$
196,500

 
$
200,370

 
$
390,234

 
$
377,783

 
 
 
 
 
 
 
 
Operating profit (loss)
 

 
 

 
 
 
 
NACoal
$
2,382

 
$
183

 
$
7,589

 
$
6,836

HBB
2,880

 
2,251

 
5,068

 
3,188

KC
(2,972
)
 
(4,255
)
 
(6,017
)
 
(10,769
)
NACCO and Other  (a)
(836
)
 
(2,004
)
 
(2,125
)
 
(3,356
)
Eliminations
(166
)
 
(66
)
 
14

 
(375
)
Total
$
1,288

 
$
(3,891
)
 
$
4,529

 
$
(4,476
)
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
 
NACoal
$
4,199

 
$
(75
)
 
$
8,746

 
$
5,630

HBB
1,618

 
1,359

 
2,236

 
1,709

KC
(1,847
)
 
(2,657
)
 
(3,740
)
 
(6,690
)
NACCO and Other
(697
)
 
(1,673
)
 
(1,936
)
 
(2,870
)
Eliminations
(3,548
)
 
(578
)
 
(4,554
)
 
(2,927
)
Total
$
(275
)
 
$
(3,624
)
 
$
752

 
$
(5,148
)

(a) During the second quarter of 2014, the Company recorded a $1.1 million charge included in Selling, general and administrative expenses in NACCO and Other to correct a prior period accounting error related to an increase in the estimated liability for certain frozen deferred compensation plans. Management, quantitatively and qualitatively, assessed the materiality of the error and the correction thereof and concluded that the effect of the previous accounting treatment was not material to prior periods, 2014 full-year results, or trend of earnings and determined no material misstatements existed in those prior periods and no restatement of those prior period financial statements was necessary.


14



NOTE 12—Subsequent Events

On July 31, 2015, management recommended and The North American Coal Corporation’s Board of Directors approved permanently discontinuing operations at Centennial in Alabama by the end of 2015. The decision was made as a result of worsening conditions in the Alabama and global coal markets and the adverse effect regulatory changes have had on Centennial’s business.

As a result of permanently discontinuing Centennial's operations, the Company expects to record estimated pre-tax charges of approximately $0.5 million to $1.0 million relating to severance and other employee benefit costs. In addition, the Company expects to record estimated pre-tax charges of up to $15.0 million for administrative and other costs associated with mine reclamation that otherwise would have been recognized in the future had the Company continued to produce coal at Centennial. These mine reclamation charges are additive to the existing $16.0 million mine reclamation liability accrued as of June 30, 2015. Most of these severance- and reclamation-related charges are expected to be recognized during the third quarter of 2015. All of these charges are expected to result in future cash expenditures, with the future cash expenditures related to mine reclamation continuing until final mine reclamation is complete. The Company’s estimated charges are subject to a number of assumptions and actual results may differ materially. Additional charges not currently expected may be incurred in connection with or as a result of the decision to permanently discontinue operations at Centennial.


15



Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in thousands, except as noted and per share data)

NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”) operate in the following principal industries: mining, small appliances and specialty retail. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.

The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Please refer to the discussion of the Company's Critical Accounting Policies and Estimates as disclosed on pages 34 through 37 in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. The Company's Critical Accounting Policies and Estimates have not materially changed since December 31, 2014.

THE NORTH AMERICAN COAL CORPORATION

NACoal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. Coal is surface mined from NACoal's developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama. Total coal reserves approximate 2.0 billion tons with approximately 1.1 billion tons committed to customers pursuant to long-term contracts.

NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Centennial Natural Resources ("Centennial"), and provides dragline mining services for independently owned limerock quarries in Florida. NACoal also has the following wholly owned unconsolidated subsidiaries that each meet the definition of a variable interest entity and are accounted for using the equity method:

The Coteau Properties Company ("Coteau")
The Falkirk Mining Company ("Falkirk")
The Sabine Mining Company ("Sabine")
Demery Resources Company, LLC (“Demery”)
Caddo Creek Resources Company, LLC (“Caddo Creek”)
Coyote Creek Mining Company, LLC (“Coyote Creek”)
Camino Real Fuels, LLC (“Camino Real”)
Liberty Fuels Company, LLC (“Liberty”)
NoDak Energy Services, LLC ("NoDak")

The unconsolidated subsidiaries, with the exception of NoDak, were formed to develop, construct and operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. Coteau, Falkirk, Sabine, Liberty and Coyote supply or will supply lignite coal for power generation. Demery and Caddo Creek supply lignite coal for the production of activated carbon. Camino Real will supply sub-bituminous coal for power generation. NoDak operates and maintains a coal processing facility.

Coteau, Falkirk and Sabine were developed between 1974 and 1981. Full production levels are expected to be reached at Demery in 2017. Liberty commenced production in 2013 but has not delivered any coal to its customer. Production levels are expected to increase gradually beginning in the second half of 2015 to full production of approximately 4.6 million tons of coal annually. Construction of the Kemper County Energy Facility adjacent to Liberty is still in process, and the pace of completion may affect the pace of deliveries. Caddo Creek commenced delivering coal in late 2014. Camino Real's customer has indicated it expects to take initial deliveries in the second half of 2015. Camino Real expects to mine approximately 2.5 million to 3.0 million tons of coal annually when at full production. Coyote Creek received its mining permit in October 2014 and is developing a mine in Mercer County, North Dakota, from which it expects to deliver approximately 2.5 million tons of coal annually beginning in mid-2016.


16


The contracts with the customers of the unconsolidated subsidiaries provide for reimbursement to the company at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee.

North American Coal Corporation India Private Limited (“NACC India”) was formed to provide technical business advisory services to the third-party owner of a coal mine in India.  During the third quarter of 2014, NACC India's customer defaulted on its contractual payment obligations and, as a result of this default, NACC India has terminated its contract with the customer and is pursuing contractual remedies.

FINANCIAL REVIEW

Tons of coal sold by NACoal's operating mines were as follows for the three and six months ended June 30:
 
THREE MONTHS
 
SIX MONTHS
 
2015
 
2014
 
2015
 
2014
 
(In millions)
Coteau
3.4

 
3.4

 
7.2

 
7.4

Falkirk
2.0

 
1.6

 
3.9

 
3.6

Sabine
1.0

 
1.2

 
2.0

 
2.3

Other
0.1

 

 
0.2

 

Unconsolidated mines
6.5

 
6.2

 
13.3

 
13.3

MLMC
0.7

 
0.9

 
1.6

 
1.5

     Centennial
0.2

 
0.2

 
0.3

 
0.4

Consolidated mines
0.9

 
1.1

 
1.9

 
1.9

Total tons sold
7.4

 
7.3

 
15.2

 
15.2


The limerock dragline mining operations sold 5.1 million and 9.6 million cubic yards of limerock in the three and six months ended June 30, 2015, respectively. This compares with 6.3 million and 11.3 million cubic yards of limerock in the three and six months ended June 30, 2014, respectively.

The results of operations for NACoal were as follows for the three and six months ended June 30:
 
THREE MONTHS
 
SIX MONTHS
 
2015
 
2014
 
2015
 
2014
Revenue - consolidated mines
$
36,078

 
$
45,809

 
$
75,224

 
$
83,304

Royalty and other
1,864

 
3,971

 
4,037

 
6,348

Total revenues
37,942

 
49,780

 
79,261

 
89,652

Cost of sales - consolidated mines
39,748

 
50,958

 
79,474

 
87,539

Cost of sales - royalty and other
499

 
669

 
939

 
1,115

Total cost of sales
40,247

 
51,627

 
80,413

 
88,654

Gross profit (loss)
(2,305
)
 
(1,847
)
 
(1,152
)
 
998

Earnings of unconsolidated mines (a)
12,076

 
11,567

 
24,629

 
24,005

Selling, general and administrative expenses
6,785

 
8,546

 
14,544

 
16,411

Amortization of intangible assets
604

 
991

 
1,344

 
1,756

Operating profit
2,382

 
183

 
7,589

 
6,836

Interest expense
1,139

 
1,506

 
2,820

 
2,577

Other (income) or loss, including (income) loss from other unconsolidated affiliates
(218
)
 
290

 
(1,703
)
 
(183
)
Income (loss) before income tax provision (benefit)
1,461

 
(1,613
)
 
6,472

 
4,442

Income tax provision (benefit)
(2,738
)
 
(1,538
)
 
(2,274
)
 
(1,188
)
Net income (loss)
$
4,199

 
$
(75
)
 
$
8,746

 
$
5,630

 


 


 


 


Effective income tax rate (b)
n/m

 
n/m

 
n/m

 
n/m


(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

17


(b) The NACoal effective income tax rate is affected by the benefit of percentage depletion. See further information regarding the consolidated effective income tax rate in Note 9 to the Unaudited Condensed Consolidated Financial Statements.

Second Quarter of 2015 Compared with Second Quarter of 2014

The following table identifies the components of change in revenues for the second quarter of 2015 compared with the second quarter of 2014:
 
Revenues
2014
$
49,780

Increase (decrease) from:
 
Consolidated mining operations
(9,731
)
Royalty and other income
(2,107
)
2015
$
37,942


Revenues decreased in the second quarter of 2015 compared with the second quarter of 2014 primarily due to fewer tons sold at the consolidated mining operations in part because customer demand for coal was lower as a result of mild weather. The reduction in tons sold at MLMC was also due to more outage days at its customer's power plant in the second quarter of 2015 compared with the second quarter of 2014. Revenues decreased at the limerock dragline mining operations as a result of fewer reimbursable costs and a reduction in tons sold due to lower customer requirements during the second quarter of 2015 compared with the second quarter of 2014. A decrease in royalty and other income also contributed to the decrease in revenues. 

The following table identifies the components of change in operating profit for the second quarter of 2015 compared with the second quarter of 2014:
 
Operating Profit
2014
$
183

Increase (decrease) from:
 
Reimbursement of damage to customer-owned equipment in 2014
1,043

Consolidated mining operations
823

Gain on sale of assets
695

Earnings of unconsolidated mines
509

Other selling, general and administrative expenses
302

Royalty and other income
(1,173
)
2015
$
2,382

Operating profit increased in the second quarter of 2015 from the second quarter of 2014 primarily due to the absence of a $1.0 million charge to reimburse a customer for damage to certain customer-owned equipment at the limerock dragline mining operations, improved operating results at the consolidated mining operations and a gain on the sale of certain assets, partially offset by a decease in royalty and other income. The increase in operating profit at the consolidated mining operations was primarily attributable to improved productivity at MLMC in the second quarter of 2015, which resulted in lower costs than in the second quarter of 2014, and a reduction in depreciation and amortization expense at Centennial due to the $105.1 million impairment charge taken in December 2014.

NACoal recognized net income of $4.2 million in the second quarter of 2015 compared with a net loss of $0.1 million in the second quarter of 2014. The increase in net income was due to the factors affecting operating profit and decreased interest expense as a result of higher debt outstanding during the second quarter of 2014. In addition, the second quarter 2014 net loss included a $1.0 million after-tax charge to establish an allowance against the receivable from NACC India's customer as well as a $1.4 million discrete tax benefit resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations.

18



First Six Months of 2015 Compared with First Six Months of 2014
The following table identifies the components of change in revenues for the first six months of 2015 compared with the first six months of 2014:

 
Revenues
2014
$
89,652

Increase (decrease) from:
 
Consolidated mining operations
(8,080
)
Royalty and other income
(2,311
)
2015
$
79,261


Revenues decreased in the first six months of 2015 compared with the first six months of 2014 as a result of a decrease in revenues at the consolidated mining operations and a reduction in royalty and other income. The decrease at the consolidated mining operations was primarily due to fewer tons sold at Centennial partially offset by an increase in tons sold at MLMC. The reduction in tons sold at Centennial was mainly attributable to reduced coal requirements at a customer's power plant, in part as a result of a significant outage during the first quarter of 2015. The increase in tons sold at MLMC was primarily the result of fewer outage days at its customer's power plant in the first six months of 2015 compared with the comparable 2014 period.  

The following table identifies the components of change in operating profit for the first six months of 2015 compared with the first six months of 2014:

 
Operating Profit
2014
$
6,836

Increase (decrease) from:
 
Reimbursement of damage to customer-owned equipment in 2014
1,043

Gain on sale of assets
734

Earnings of unconsolidated mines
625

Other selling, general and administrative expenses
367

Royalty and other income
(1,372
)
Consolidated mining operations
(644
)
2015
$
7,589

 
Operating profit increased in the first six months of 2015 from the first six months of 2014 primarily due to the absence of a $1.0 million charge to reimburse a customer for damage to certain customer-owned equipment at the limerock dragline mining operations and a gain on the sale of certain assets. This improvement was partially offset by a decrease in royalty and other income and lower results at the consolidated mining operations in the first six months of 2015 compared with the first six months of 2014.

At the consolidated mining operations, a decline in operating profit at Centennial was partially offset by improved results at MLMC, primarily due to the increase in tons sold from a decrease in outage days at the customer's power plant during the first six months of 2015 compared with 2014. At Centennial, an increased operating loss resulted from a reduction in tons sold and no capitalized costs related to mine development in the first six months of 2015.

NACoal recognized net income of $8.7 million in the six months ended June 30, 2015 compared with net income of $5.6 million in the six months ended June 30, 2014. The increase in net income was primarily due to the factors affecting operating profit and $0.9 million in other income related to a dividend received in the first quarter of 2015. In addition, net income for the six months ended June 30, 2014 included a $1.0 million after-tax charge to establish an allowance against the receivable from NACC India's customer as well as a $1.4 million discrete tax benefit resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations.



19


LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the changes in cash flow for the six months ended June 30:
 
2015
 
2014
 
Change
Operating activities:
 
 
 
 
 
Net income
$
8,746

 
$
5,630

 
$
3,116

Depreciation, depletion and amortization
8,554

 
10,363

 
(1,809
)
Other
(4,522
)
 
3,148

 
(7,670
)
Working capital changes
62,448

 
(10,786
)
 
73,234

Net cash provided by operating activities
75,226

 
8,355

 
66,871

 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(2,124
)
 
(37,955
)
 
35,831

Other
1,009

 
(5
)
 
1,014

Net cash used for investing activities
(1,115
)
 
(37,960
)
 
36,845

 
 
 
 
 
 
Cash flow before financing activities
$
74,111

 
$
(29,605
)
 
$
103,716


The increase in net cash provided by operating activities was primarily the result of working capital changes during the first six months of 2015 compared with the first six months of 2014. The change in working capital was mainly attributable to a significant decrease in accounts receivable from affiliates as well as a decrease in intercompany taxes. Accounts receivable from affiliates decreased as NACoal received payment from Coyote Creek, an unconsolidated mine, in the first quarter of 2015.

The decrease in net cash used for investing activities was primarily attributable to a reduction in expenditures for property, plant and equipment. In the first six months of 2014, capital expenditures were mainly for the refurbishment of a dragline and purchase of equipment at Centennial.
 
2015
 
2014
 
Change
Financing activities:
 
 
 
 
 
Net additions (reductions) to long-term debt and revolving credit agreements
$
(74,221
)
 
$
21,290

 
$
(95,511
)
Capital contribution from NACCO

 
8,300

 
(8,300