NACCO INDUSTRIES INC - FORM 10-Q

Attached files

file	filename
EX-95 - EXHIBIT 95 - NACCO INDUSTRIES INC	exhibit95q217.htm
EX-32 - EXHIBIT 32 - NACCO INDUSTRIES INC	exhibit32q217.htm
EX-31.2 - EXHIBIT 31.2 - NACCO INDUSTRIES INC	exhibit312q217.htm
EX-31.1 - EXHIBIT 31.1 - NACCO INDUSTRIES INC	exhibit311q217.htm
EX-10.2 - EXHIBIT 10.2 - NACCO INDUSTRIES INC	exhibit102q217.htm
EX-10.1 - EXHIBIT 10.1 - NACCO INDUSTRIES INC	exhibit101q217.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, 2017



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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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 28, 2017: 5,266,268

Number of shares of Class B Common Stock outstanding at July 28, 2017: 1,570,448

NACCO INDUSTRIES, INC.

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			Page Number
Part I.	FINANCIAL INFORMATION

	Item 1	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets at June 30, 2017, December 31, 2016 and June 30, 2016	2

		Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016	3

		Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2017 and 2016	4

		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	5

		Unaudited Condensed Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2017 and 2016	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	13

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	30

	Item 4	Controls and Procedures	31

Part II.	OTHER INFORMATION

	Item 1	Legal Proceedings	32

	Item 1A	Risk Factors	32

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

	Item 3	Defaults Upon Senior Securities	32

	Item 4	Mine Safety Disclosures	32

	Item 5	Other Information	32

	Item 6	Exhibits	32

	Signatures		33

	Exhibit Index		34

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Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



	JUNE 30 2017			DECEMBER 31 2016			JUNE 30 2016
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	60,209		$	80,648		$	34,257
Accounts receivable, net	85,025			117,463			77,173
Accounts receivable from unconsolidated subsidiaries	11,270			7,404			4,450
Inventories, net	163,759			157,342			167,589
Assets held for sale	1,373			2,016			15,570
Prepaid expenses and other	22,323			16,859			21,925
Total current assets	343,959			381,732			320,964
Property, plant and equipment, net	132,126			131,049			132,290
Goodwill	6,253			6,253			6,253
Other Intangibles, net	51,062			52,959			55,034
Deferred income taxes	23,839			28,380			29,997
Investments in unconsolidated subsidiaries	27,254			31,054			30,643
Deferred costs	10,598			10,037			8,431
Other non-current assets	26,169			26,557			25,911
Total assets	$	621,260		$	668,021		$	609,523
LIABILITIES AND EQUITY
Accounts payable	$	104,794		$	128,248		$	100,878
Revolving credit agreements of subsidiaries - not guaranteed by the parent company	22,276			12,714			6,158
Current maturities of long-term debt of subsidiaries - not guaranteed by the parent company	1,212			1,744			1,523
Accrued payroll	20,332			32,925			18,513
Accrued cooperative advertising	6,898			15,056			7,217
Other current liabilities	30,537			31,141			27,395
Total current liabilities	186,049			221,828			161,684
Long-term debt of subsidiaries - not guaranteed by the parent company	99,918			120,295			143,471
Asset retirement obligations	39,153			38,262			41,588
Pension and other postretirement obligations	13,386			14,271			12,747
Other long-term liabilities	51,794			53,072			51,061
Total liabilities	390,300			447,728			410,551
Stockholders' equity
Common stock:
Class A, par value $1 per share, 5,266,268 shares outstanding (December 31, 2016 - 5,207,955 shares outstanding; June 30, 2016 - 5,240,777 shares outstanding)	5,266			5,208			5,241
Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,570,448 shares outstanding (December 31, 2016 - 1,570,915 shares outstanding; June 30, 2016 - 1,571,518 shares outstanding)	1,570			1,571			1,572
Capital in excess of par value	—			—			—
Retained earnings	248,239			239,441			217,728
Accumulated other comprehensive loss	(24,115		)	(25,927		)	(25,569		)
Total stockholders' equity	230,960			220,293			198,972
Total liabilities and equity	$	621,260		$	668,021		$	609,523

See notes to Unaudited Condensed Consolidated Financial Statements.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30						JUNE 30
	2017			2016			2017			2016
	(In thousands, except per share data)
Revenues	$	181,076		$	178,007		$	349,658		$	351,428
Cost of sales	137,648			137,478			267,095			270,894
Gross profit	43,428			40,529			82,563			80,534
Earnings of unconsolidated mines	13,475			13,035			28,430			25,683
Operating expenses
Selling, general and administrative expenses	47,999			46,870			94,192			92,885
(Gain)/loss on sale of assets	(2,641		)	658			(3,044		)	902
Amortization of intangible assets	964			826			1,896			1,808
	46,322			48,354			93,044			95,595
Operating profit	10,581			5,210			17,949			10,622
Other expense (income)
Interest expense	1,390			1,470			2,737			2,975
Income from other unconsolidated affiliates	(311		)	(303		)	(619		)	(606		)
Closed mine obligations	352			349			735			725
Other, net, including interest income	(326		)	2,017			(1,028		)	2,070
	1,105			3,533			1,825			5,164
Income before income tax provision (benefit)	9,476			1,677			16,124			5,458
Income tax provision (benefit)	2,688			(1,439		)	4,358			(460		)
Net income	$	6,788		$	3,116		$	11,766		$	5,918

Basic earnings per share	$	0.99		$	0.45		$	1.73		$	0.86
Diluted earnings per share	$	0.99		$	0.45		$	1.72		$	0.86

Dividends per share	$	0.2725		$	0.2675		$	0.5400		$	0.5300

Basic weighted average shares outstanding	6,835			6,856			6,818			6,853
Diluted weighted average shares outstanding	6,850			6,874			6,847			6,878

See notes to Unaudited Condensed Consolidated Financial Statements.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30						JUNE 30
	2017			2016			2017			2016
	(In thousands)
Net income	$	6,788		$	3,116		$	11,766		$	5,918
Foreign currency translation adjustment	672			(1,025		)	1,743			(818		)
Deferred gain on available for sale securities	238			99			464			164
Current period cash flow hedging activity, net of $283 and $369 tax benefit in the three and six months ended June 30, 2017, and $308 and $988 tax benefit in the three and six months ended June 30, 2016, respectively.	(620		)	(514		)	(859		)	(1,881		)
Reclassification of hedging activities into earnings, net of $77 and $89 tax benefit in the three and six months ended June 30, 2017, respectively, and $44 and $105 tax benefit in the three and six months ended June 30, 2016, respectively.	134			33			140			108
Reclassification of pension and postretirement adjustments into earnings, net of $140 and $190 tax benefit in the three and six months ended June 30, 2017, respectively, and $84 and $183 tax benefit in the three and six months ended June 30, 2016, respectively.	148			153			324			302
Total other comprehensive income (loss)	$	572		$	(1,254	)	$	1,812		$	(2,125	)
Comprehensive income	$	7,360		$	1,862		$	13,578		$	3,793

See notes to Unaudited Condensed Consolidated Financial Statements.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	SIX MONTHS ENDED
	JUNE 30
	2017			2016
	(In thousands)
Operating activities
Net income	$	11,766		$	5,918
Adjustments to reconcile from net income to net cash (used for) provided by operating activities:
Depreciation, depletion and amortization	8,905			8,708
Amortization of deferred financing fees	296			314
Deferred income taxes	4,541			12,016
Other	650			(1,871		)
Working capital changes:
Accounts receivable	26,867			32,559
Inventories	(6,449		)	(2,768		)
Other current assets	(3,232		)	115
Accounts payable	(22,385		)	(1,227		)
Income taxes receivable/payable	(187		)	(9,972		)
Other current liabilities	(22,519		)	(26,823		)
Net cash (used for) provided by operating activities	(1,747		)	16,969

Investing activities
Expenditures for property, plant and equipment	(8,099		)	(8,694		)
Proceeds from the sale of property, plant and equipment	1,474			2,630
Other	617			(2,542		)
Net cash used for investing activities	(6,008		)	(8,606		)

Financing activities
Additions to long-term debt	6,193			—
Reductions of long-term debt	(24,814		)	(16,623		)
Net additions (reductions) to revolving credit agreements	9,562			(2,207		)
Cash dividends paid	(3,690		)	(3,638		)
Purchase of treasury shares	—			(3,826		)
Other	—			(202		)
Net cash used for financing activities	(12,749		)	(26,496		)

Effect of exchange rate changes on cash	65			(109		)

Cash and cash equivalents
Decrease for the period	(20,439		)	(18,242		)
Balance at the beginning of the period	80,648			52,499
Balance at the end of the period	$	60,209		$	34,257

See notes to Unaudited Condensed Consolidated Financial Statements.

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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, 2016	$	5,265		$	1,572		$	—		$	217,745			$	(5,455	)		$	1,480		$	(112	)		$	(19,357	)	$	201,138
Stock-based compensation	46			—			1,459			—				—				—			—				—			1,505
Purchase of treasury shares	(70		)	—			(1,459		)	(2,297		)		—				—			—				—			(3,826		)
Net income	—			—			—			5,918				—				—			—				—			5,918
Cash dividends on Class A and Class B common stock: $0.5300 per share	—			—			—			(3,638		)		—				—			—				—			(3,638		)
Current period other comprehensive income (loss)	—			—			—			—				(818		)		164			(1,881		)		—			(2,535		)
Reclassification adjustment to net income	—			—			—			—				—				—			108				302			410
Balance, June 30, 2016	$	5,241		$	1,572		$	—		$	217,728			$	(6,273	)		$	1,644		$	(1,885	)		$	(19,055	)	$	198,972

Balance, January 1, 2017	$	5,208		$	1,571		$	—		$	239,441			$	(7,533	)		$	1,893		$	393			$	(20,680	)	$	220,293
Stock-based compensation	57			—			—			722				—				—			—				—			779
Conversion of Class B to Class A shares	1			(1		)	—			—				—				—			—				—			—
Net income	—			—			—			11,766				—				—			—				—			11,766
Cash dividends on Class A and Class B common stock: $0.5400 per share	—			—			—			(3,690		)		—				—			—				—			(3,690		)
Current period other comprehensive income (loss)	—			—			—			—				1,743				464			(859		)		—			1,348
Reclassification adjustment to net income	—			—			—			—				—				—			140				324			464
Balance, June 30, 2017	$	5,266		$	1,570		$	—		$	248,239			$	(5,790	)		$	2,357		$	(326	)		$	(20,356	)	$	230,960

See notes to Unaudited Condensed Consolidated Financial Statements.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(In thousands, except as noted and per share amounts)

NOTE 1—Nature of Operations and Basis of Presentation

Nature of Operations

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, consumer, commercial and specialty 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 coal primarily for use in power generation and provide value-added services for natural resource companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of branded 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.

NACoal has the following operating coal mining subsidiaries: Bisti Fuels Company, LLC ("Bisti"), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Liberty Fuels Company, LLC (“Liberty”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).

All of the operating coal mining subsidiaries other than MLMC are unconsolidated (collectively the "Unconsolidated Mines"). The Unconsolidated Mines were formed to develop, construct and/or 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. The contracts with the customers of the Unconsolidated Mines provide for reimbursement to the company at a price based on actual costs plus an agreed upon pre-tax profit per ton of coal sold or actual costs plus an agreed upon fee per btu of heating value delivered. The fees earned at each mine adjust over time in line with various indices which reflect general U.S. inflation rates.

Although NACoal owns 100% of the equity and manages the daily operations of the Unconsolidated Mines, 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 position or results of operations. The income taxes resulting from 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 Consolidated Statements of Operations, with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Mines above operating profit as they are an integral component of the Company's business and operating results.

MLMC is a consolidated entity because NACoal pays all operating costs and provides the capital for the mine. MLMC sells coal to its customer at a contractually agreed upon price which adjusts monthly, primarily based on changes in the level of established indices which reflect general U.S. inflation rates. Centennial Natural Resources, LLC ("Centennial"), which ceased coal production in the fourth quarter of 2015, is also a consolidated entity.

NACoal provides value-added mining services for independently owned limerock quarries through its North American Mining ("NAM") division. NAM is reimbursed by its customers based on actual costs plus a management fee. The financial results for NAM are included in consolidated mining operations or unconsolidated mining operations based on each entity's structure.

NACoal also provides coal handling, processing and drying services for a number of customers. For example, NoDak Energy Services, LLC ("NoDak") operates and maintains a coal processing facility for a customer's power plant. The pre-tax income from NoDak is reported on the line "Income from other unconsolidated affiliates" in the "Other (income) expense" section of the Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes. North

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American Coal Royalty Company, a consolidated entity, provides surface and mineral acquisition and lease maintenance services related to the Company's operations.

All of the unconsolidated subsidiaries are accounted for under the equity method. See Note 6 for further discussion.

Basis of Presentation

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, 2017 and the results of its operations, comprehensive income (loss), cash flows and changes in equity for the six months ended June 30, 2017 and 2016 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, 2016.

The balance sheet at December 31, 2016 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, 2017 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2017. 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 consumer, commercial and specialty small 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, 2016.

NOTE 2—Recently Issued Accounting Standards

Accounting Standards Not Yet Adopted

In May 2014, the FASB codified in ASC 606, "Revenue Recognition - Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers and provide additional disclosures. As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein. The Company anticipates adopting the new revenue guidance effective January 1, 2018 using the modified retrospective method with the cumulative effect of initially applying the standard recognized as an adjustment to equity. The Company has developed a project plan with respect to its implementation of this standard, including identification of revenue streams and review of contracts and procedures currently in place. To date, the Company has completed its initial review of the revenue streams related to its HBB and KC subsidiaries. The Company is in the process of completing its review of customer contracts at its NACoal subsidiary and developing its conclusions on several aspects of the standard including identification of performance obligations and principal versus agent considerations. The Company is also in the process of identifying and implementing any necessary changes to processes and controls to meet the standard's updated reporting and disclosure requirements. The Company continues to assess the potential impact of the standard and has not yet reached a conclusion as to how the adoption of the standard will impact the Company's financial position, results of operations or cash flows. The adoption of this guidance will result in increased disclosures to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts.

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which modifies how entities measure equity investments and present changes in the fair value of financial liabilities; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact that this new guidance will have on the Company’s financial position, results of operations, cash flows and related disclosures.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which requires an entity to recognize assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02

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is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating how and to what extent ASU 2016-02 will affect the Company's financial position, results of operations, cash flows and related disclosures.

NOTE 3—Inventories

Inventories are summarized as follows:



	JUNE 30 2017		DECEMBER 31 2016		JUNE 30 2016
Coal - NACoal	$	12,653	$	13,137	$	18,533
Mining supplies - NACoal	15,709		15,790		19,868
Total inventories at weighted average cost	28,362		28,927		38,401
Sourced inventories - HBB	104,342		95,008		96,401
Retail inventories - KC	31,055		33,407		32,787
Total inventories	$	163,759	$	157,342	$	167,589

NOTE 4—Stockholders' Equity

Stock Repurchase Program: On May 10, 2016, the Company's Board of Directors approved a stock repurchase program (the "2016 Stock Repurchase Program") providing for the purchase of up to $50 million of the Company's Class A Common Stock outstanding through December 31, 2017. The Company’s previous $60 million stock repurchase program, announced in December 2013, was completed in October 2015. The timing and amount of any repurchases under the 2016 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 2016 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 2016 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.

During the three and six months ended June 30, 2017, the Company did not repurchase any shares of Class A Common Stock under the 2016 Stock Repurchase Program.

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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, 2017
Assets:
Available for sale securities	$	8,595	$	8,595	$	—	$	—
Interest rate swap agreements	623		—		623		—
	$	9,218	$	8,595	$	623	$	—
Liabilities:
Interest rate swap agreements	$	29	$	—	$	29	$	—
Foreign currency exchange contracts	903		—		903		—
	$	932	$	—	$	932	$	—

	December 31, 2016
Assets:
Available for sale securities	$	7,882	$	7,882	$	—	$	—
Interest rate swap agreements	774		—		774		—
Foreign currency exchange contracts	147		—		147		—
	$	8,803	$	7,882	$	921	$	—
Liabilities:
Interest rate swap agreements	$	339	$	—	$	339	$	—
	$	339	$	—	$	339	$	—

	June 30, 2016
Assets:
Available for sale securities	$	7,498	$	7,498	$	—	$	—
	$	7,498	$	7,498	$	—	$	—
Liabilities:
Interest rate swap agreements	$	2,491	$	—	$	2,491	$	—
Foreign currency exchange contracts	295		—		295		—
	$	2,786	$	—	$	2,786	$	—

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 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.

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, 2017 and 2016.

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NOTE 6—Unconsolidated Subsidiaries

NACoal's wholly owned unconsolidated subsidiaries each meet the definition of a variable interest entity. See Note 1 for a discussion of these entities.

The investment in the unconsolidated subsidiaries and related tax positions totaled $27.3 million, $31.1 million and $30.6 million at June 30, 2017, December 31, 2016 and June 30, 2016, respectively. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $5.3 million, $4.6 million and $4.8 million at June 30, 2017, December 31, 2016, and June 30, 2016, respectively.

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
	2017		2016		2017		2016
Revenues	$	174,554	$	160,281	$	368,728	$	305,351
Gross profit	$	19,857	$	19,673	$	41,854	$	38,421
Income before income taxes	$	13,616	$	13,246	$	29,326	$	26,367
Net income	$	10,110	$	9,717	$	21,791	$	19,727

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. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss.

These matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of an adverse impact on the Company’s financial position, results of operations and cash flows of the period in which the ruling occurs, or in future periods.

Environmental matters

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

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time frame for remediation at these sites.

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, 2017, December 31, 2016 and June 30, 2016, HBB had accrued undiscounted obligations of $8.9 million, $8.7 million and $9.2 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 $5.2 million related to the environmental investigation and remediation at these sites.

NOTE 8—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.

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
	2017			2016			2017			2016
Revenues
NACoal	$	28,100		$	23,089		$	56,400		$	53,376
HBB	127,574			127,054			241,728			242,794
KC	25,868			28,634			52,533			57,017
Eliminations	(466		)	(770		)	(1,003		)	(1,759		)
Total	$	181,076		$	178,007		$	349,658		$	351,428

Operating profit (loss)
NACoal	$	10,876		$	4,823		$	22,202		$	14,565
HBB	5,164			4,696			5,946			4,763
KC	(3,008		)	(3,011		)	(6,287		)	(5,901		)
NACCO and Other	(2,459		)	(1,297		)	(3,979		)	(2,738		)
Eliminations	8			(1		)	67			(67		)
Total	$	10,581		$	5,210		$	17,949		$	10,622

Net income (loss)
NACoal (a)	$	8,438		$	3,324		$	17,727		$	11,577
HBB	3,195			2,934			3,884			2,673
KC	(1,970		)	(1,954		)	(4,113		)	(3,822		)
NACCO and Other	(2,132		)	(1,118		)	(3,470		)	(2,185		)
Eliminations	(743		)	(70		)	(2,262		)	(2,325		)
Total	$	6,788		$	3,116		$	11,766		$	5,918

(a) During the second quarter and six months ended June 30, 2016, the Company recorded an income tax benefit of $2.3 million as a result of the reversal of an uncertain tax position initially recorded as part of the Centennial acquisition. The Company also reversed a corresponding indemnification receivable related to the uncertain tax position that resulted in $2.2 million of other expense during the second quarter and six months ended June 30, 2016.

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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, consumer, commercial and specialty 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 coal primarily for use in power generation and provide value-added mining services for natural resource companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of branded 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 36 through 39 in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The Company's Critical Accounting Policies and Estimates have not materially changed since December 31, 2016.

CONSOLIDATED FINANCIAL SUMMARY

The following table identifies the components of change in Revenues, Operating profit and Net income:



	Revenues			Operating profit			Net income
Consolidated results for the three months ended June 30, 2016	$	178,007		$	5,210		$	3,116
Increase (decrease) in 2017
NACoal	5,011			6,053			5,114
HBB	520			468			261
KC	(2,766		)	3			(16		)
NACCO and Other	—			(1,162		)	(1,014		)
Eliminations	304			9			(673		)
Consolidated results for the three months ended June 30, 2017	$	181,076		$	10,581		$	6,788



	Revenues			Operating profit			Net income
Consolidated results for the six months ended June 30, 2016	$	351,428		$	10,622		$	5,918
Increase (decrease) in 2017
NACoal	3,024			7,637			6,150
HBB	(1,066		)	1,183			1,211
KC	(4,484		)	(386		)	(291		)
NACCO and Other	—			(1,241		)	(1,285		)
Eliminations	756			134			63
Consolidated results for the six months ended June 30, 2017	$	349,658		$	17,949		$	11,766

The components of change are discussed below in "Segment Results."

Liquidity and Capital Resources of NACCO

Although NACCO's subsidiaries have entered into substantial borrowing agreements, NACCO has not guaranteed any borrowings of its subsidiaries. The borrowing agreements at NACoal, HBB and KC allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by its subsidiaries' borrowing agreements) and management fees from its subsidiaries are the primary sources of cash for NACCO.

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The Company believes funds available from cash on hand, its subsidiaries' credit facilities and anticipated funds generated from operations are sufficient to finance all of the subsidiaries' scheduled principal repayments, and its operating needs and commitments arising during the next twelve months and until the expiration of its subsidiaries' credit facilities.

Capital Structure

NACCO's consolidated capital structure is presented below:



	JUNE 30 2017			DECEMBER 31 2016			Change
Cash and cash equivalents	$	60,209		$	80,648		$	(20,439	)
Other net tangible assets	258,250			236,823			21,427
Goodwill and intangible assets, net	57,315			59,212			(1,897		)
Net assets	375,774			376,683			(909		)
Total debt	(123,406		)	(134,753		)	11,347
Bellaire closed mine obligations	(21,408		)	(21,637		)	229
Total equity	$	230,960		$	220,293		$	10,667
Debt to total capitalization	35%			38%			(3)%

The components of change are discussed below in "Segment Results."

SEGMENT RESULTS

THE NORTH AMERICAN COAL CORPORATION

NACoal mines coal primarily for use in power generation and provides value-added mining services for natural resource companies. Coal is surface mined from NACoal's mines in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico. NACoal provides value-added services such as maintaining and operating draglines for independently owned limerock quarries through its North American Mining ("NAM") division and providing ash hauling services for power plants and other facilities.

NAM provides value-added services for independently owned limerock quarries and is reimbursed by its customers based on actual costs plus a management fee. The financial results for NAM are included in the consolidated mining operations or unconsolidated mining operations based on each entity's structure.

NACoal also provides coal handling, processing and drying services for a number of customers. For example, NoDak Energy Services, LLC ("NoDak") operates and maintains a coal processing facility for a customer's power plant. North American Coal Royalty Company provides surface and mineral acquisition and lease maintenance services related to the Company's operations.

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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
	2017	2016	2017	2016
	(In millions)
Coteau	3.5	3.4	7.3	7.0
Falkirk	1.3	1.5	3.0	3.2
Sabine	0.5	1.1	1.5	2.2
Camino Real	0.7	0.4	1.2	0.9
Coyote Creek	0.5	0.2	1.0	0.2
Bisti	0.7	—	2.0	—
Other	0.3	0.1	0.7	0.2
Unconsolidated mines	7.5	6.7	16.7	13.7
MLMC	0.7	0.6	1.4	1.4
Total tons sold	8.2	7.3	18.1	15.1

NAM sold 7.9 million and 15.7 million cubic yards of limerock in the three and six months ended June 30, 2017, respectively. This compares with 7.1 million and 13.9 million cubic yards of limerock in the three and six months ended June 30, 2016, respectively.

The results of operations for NACoal were as follows for the three and six months ended June 30:



	THREE MONTHS						SIX MONTHS
	2017			2016			2017			2016
Revenue - consolidated mines	$	24,878		$	21,904		$	50,079		$	49,152
Revenue - royalty and other	3,222			1,185			6,321			4,224
Total revenues	28,100			23,089			56,400			53,376
Cost of sales - consolidated mines	22,894			20,263			46,078			43,971
Cost of sales - royalty and other	562			537			1,086			1,088
Total cost of sales	23,456			20,800			47,164			45,059
Gross profit	4,644			2,289			9,236			8,317
Earnings of unconsolidated mines (a)	13,475			13,035			28,430			25,683
Selling, general and administrative expenses	9,249			9,346			17,283			17,395
Amortization of intangible assets	619			481			1,206			1,118
(Gain) loss on sale of assets	(2,625		)	674			(3,025		)	922
Operating profit	10,876			4,823			22,202			14,565
Interest expense	928			1,095			1,860			2,146
Other (income) expense, including income from other unconsolidated affiliates	(307		)	1,999			(550		)	1,774
Income before income tax provision (benefit)	10,255			1,729			20,892			10,645
Income tax provision (benefit)	1,817			(1,595		)	3,165			(932		)
Net income	$	8,438		$	3,324		$	17,727		$	11,577

Effective income tax rate (b) (c)	17.7		%	n/m			15.1		%	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.

(b) The NACoal effective income tax rate is affected by the benefit of percentage depletion.

(c) During the second quarter and six months ended June 30, 2016, the Company recorded an income tax benefit of $2.3 million as a result of the reversal of an uncertain tax position initially recorded as part of the Centennial acquisition. The Company also reversed a corresponding indemnification receivable related to the uncertain tax position that resulted in $2.2 million of other expense during the second quarter and six months ended June 30, 2016.

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Second Quarter of 2017 Compared with Second Quarter of 2016

The following table identifies the components of change in revenues for the second quarter of 2017 compared with the second quarter of 2016:



	Revenues
2016	$	23,089
Increase (decrease) from:
Consolidated mines, excluding Centennial	3,075
Royalty and other	2,258
Centennial	(322		)
2017	$	28,100

Revenues increased $5.0 million in the second quarter of 2017 compared with the second quarter of 2016 due to the consolidated mines as more tons were sold at MLMC, as a result of increased customer requirements, and higher royalty and other revenues.

The following table identifies the components of change in operating profit for the second quarter of 2017 compared with the second quarter of 2016:



	Operating Profit
2016	$	4,823
Increase (decrease) from:
Net gain on sale of assets, primarily Centennial	3,299
Royalty and other	2,282
Consolidated mines, excluding Centennial	489
Earnings of unconsolidated mines	440
Centennial, excluding the net gain on sales of assets	18
Selling, general and administrative expenses	(475		)
2017	$	10,876

Operating profit increased $6.1 million in the second quarter of 2017 compared with the second quarter of 2016 primarily due to a $2.3 million gain on the sale of a dragline at Centennial and improved results in royalty and other.

NACoal recognized net income of $8.4 million in the second quarter of 2017 compared with net income of $3.3 million in the second quarter of 2016. The change in net income was primarily due to the factors affecting operating profit.

First Six Months of 2017 Compared with First Six Months of 2016

The following table identifies the components of change in revenues for the first six months of 2017 compared with the first six months of 2016:



	Revenues
2016	$	53,376
Increase (decrease) from:
Royalty and other	2,351
Consolidated mines, excluding Centennial	1,327
Centennial	(654		)
2017	$	56,400

Revenues increased $3.0 million in the first six months of 2017 compared with the first six months of 2016 primarily due to increases in royalty and other revenues and revenues at the consolidated mines, primarily due to increased customer requirements at NAM's consolidated mines.

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The following table identifies the components of change in operating profit for the first six months of 2017 compared with the first six months of 2016:



	Operating Profit
2016	$	14,565
Increase (decrease) from:
Net gain on sale of assets, primarily Centennial	3,947
Earnings of unconsolidated mines	2,747
Royalty and other	2,434
Centennial, excluding the net gain on sales of assets	1,502
Consolidated mines, excluding Centennial	(2,450		)
Selling, general and administrative expenses	(543		)
2017	$	22,202

Operating profit increased $7.6 million in the first six months of 2017 compared with the first six months of 2016 primarily due to a $2.3 million gain on the sale of a dragline at Centennial, an increase in earnings of unconsolidated mines, as new mines began or increased production, and improved results in royalty and other. These increases were partially offset by a decrease in results at the consolidated mines, principally MLMC. The decrease at MLMC was primarily due to an increase in total cost of sales, which includes both production costs and changes in inventory. The first six months of 2017 includes the recognition of production costs previously capitalized into inventory compared with the capitalization of production costs into inventory in the first six months of 2016.

NACoal recognized net income of $17.7 million in the first six months of 2017 compared with net income of $11.6 million in the first six months of 2016. The change in net income was primarily due to the factors affecting operating profit.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the changes in cash flow for the six months ended June 30:



	2017			2016			Change
Operating activities:
Net income	$	17,727		$	11,577		$	6,150
Depreciation, depletion and amortization	6,239			5,964			275
Other	4,529			10,247			(5,718		)
Working capital changes	(11,161		)	(27,679		)	16,518
Net cash provided by operating activities	17,334			109			17,225

Investing activities:
Expenditures for property, plant and equipment	(5,697		)	(5,623		)	(74		)
Other	2,030			(18		)	2,048
Net cash used for investing activities	(3,667		)	(5,641		)	1,974

Cash flow before financing activities	$	13,667		$	(5,532	)	$	19,199

The change in net cash provided by operating activities was primarily the result of working capital changes during the first six months of 2017 compared with the first six months of 2016, mainly attributable to changes in accrued payroll and intercompany income taxes.

The change in net cash used for investing activities was primarily attributable to proceeds from the sale of equipment at Centennial in the first six months of 2017.

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	2017			2016			Change
Financing activities:
Net reductions to long-term debt and revolving credit agreements	$	(24,621	)	$	(779	)	$	(23,842	)
Net cash used for financing activities	$	(24,621	)	$	(779	)	$	(23,842	)

The change in net cash used for financing activities was primarily from a significant reduction in borrowings on NACoal's revolving credit facility during the first six months of 2017 when compared with the first six months of 2016.

Financing Activities

NACoal has an unsecured revolving line of credit of up to $225.0 million (the “NACoal Facility”) that expires in November 2018. Borrowings outstanding under the NACoal Facility were $60.0 million at June 30, 2017. At June 30, 2017, the excess availability under the NACoal Facility was $163.6 million, which reflects a reduction for outstanding letters of credit of $1.4 million.

The NACoal Facility has performance-based pricing, which sets interest rates based upon achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved. The applicable margins, effective June 30, 2017, for base rate and LIBOR loans were 0.75% and 1.75%, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.25% on the unused commitment at June 30, 2017. The floating rate of interest applicable to the NACoal Facility at June 30, 2017 was 3.39% including the floating rate margin and the effect of the interest rate swap agreement.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of 3.50 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 3.00 to 1.00 in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million. At June 30, 2017, NACoal was in compliance with all financial covenants in the NACoal Facility.

NACoal believes funds available from cash on hand at the Company, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2016, there have been no significant changes in the total amount of NACoal's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 48 in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. See Note 6 for a discussion of certain guarantees related to Coyote Creek.

Capital Expenditures

Expenditures for property, plant and equipment were $5.7 million during the first six months of 2017. NACoal estimates that its capital expenditures for the remainder of 2017 will be an additional $9.2 million, primarily for land and machinery and equipment at MLMC. These expenditures are expected to be funded from internally generated funds and bank borrowings.

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Capital Structure

NACoal's capital structure is presented below:



	JUNE 30 2017			DECEMBER 31 2016			Change
Cash and cash equivalents	$	24		$	10,978		$	(10,954	)
Other net tangible assets	148,375			145,028			3,347
Coal supply agreements, net	44,472			45,678			(1,206		)
Net assets	192,871			201,684			(8,813		)
Total debt	(69,130		)	(96,039		)	26,909
Total equity	$	123,741		$	105,645		$	18,096
Debt to total capitalization	36%			48%			(12)%

The increase in other net tangible assets during the first six months of 2017 was primarily due to an increase in accounts receivable from unconsolidated subsidiaries. The change in cash and cash equivalents was primarily from a significant reduction in borrowings on NACoal's revolving credit facility during the first six months of of 2017.

OUTLOOK

NACoal expects an increase in tons sold in the second half of 2017 compared with the second half of 2016 and expects a moderate increase in tons sold over the first half of 2017. Income before income tax is also expected to increase in the remainder of 2017 compared with the second half of 2016, resulting in a substantial increase in full-year 2017 income before income tax, including and excluding the effect of Centennial's 2016 asset impairment and legal resolution charges.

Income before income tax in the second half of 2017 is expected to benefit from lower lease-related expenses and lower employee-related costs. These improvements are expected to be partially offset by a substantial decrease in MLMC's

second-half 2017 results compared with both the prior year and first half of 2017, primarily as a result of reduced customer requirements, and lower results from NAM's consolidated limerock mining operations. For the second half of 2017, Centennial's operating loss is expected to be comparable to the second half of 2016, excluding Centennial's 2016 impairment charge, legal resolution charges and mine reclamation adjustment. Centennial will continue to evaluate strategies to optimize cash flow, including the continued assessment of a range of strategies for its remaining Alabama mineral reserves, including holding reserves with substantial unmined coal tons for sale or contract mining when conditions permit. Cash expenditures related to mine reclamation will continue until reclamation is complete, or ownership of, or responsibility for, the remaining mines is transferred.

Income before income tax for the second half of 2017 is also expected to benefit from an increase in earnings from the unconsolidated mining operations due to the start of production at Bisti on January 1, 2017. In addition, at NAM's unconsolidated operations, mining commenced in 2016 at additional limerock quarries for an existing customer and for a new customer, and in June 2017, NAM signed a new contract with a new limerock customer for operations that commenced in July 2017. All of these new NAM operations are also expected to contribute to the increase in income from the unconsolidated mining operations.

In 2016, one of NACoal's unconsolidated mines, Liberty, began delivering coal to its customer, Mississippi Power Company, for facility testing and commissioning at Mississippi Power's Kemper County energy facility. On June 28, 2017, Southern Company and its subsidiary, Mississippi Power, issued a press release announcing they were immediately suspending start-up and operations activities involving the coal gasifier portion of the Kemper County energy facility. Liberty is the sole supplier of coal to fuel the gasifier. At this time, the future of the Kemper County coal gasification facility is uncertain, and therefore the future of the Liberty Mine is uncertain. NACoal will continue to operate under its contract with Mississippi Power and will support its customer pending a final decision on the continued operation of the gasifier and the Liberty Mine. The terms of the contract specify that Mississippi Power is responsible for all mine closure costs, should that be required, with the Liberty Mine specified as the contractor to complete final mine closure. Should the decision to suspend operations of the gasifier and mine become permanent, it will unfavorably affect NACoal's long-term earnings under its contract with Mississippi Power. This reduction in earnings would unfavorably affect NACoal's longer-term goal to increase the earnings of its unconsolidated operations by approximately 50% from the 2012 level of $42.5 million. Production levels at Liberty were expected to increase gradually and build to full production of approximately 4.5 million tons of coal annually beginning in 2023.

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While the current regulatory environment for development of new coal projects has improved, continued low natural gas prices and growth in renewable energy sources, such as solar and wind, could unfavorably affect the amount of electricity generation attributable to coal-fired power plants over the longer term. NACoal will be re-evaluating its outlook for its coal deliveries to its customers' coal-fired power plants, and commensurate with this, its long-term financial goal. NACoal expects to continue efforts to develop opportunities for new or expanded coal mining projects, although future opportunities are likely to be very limited. In addition, NACoal continues to pursue additional non-coal mining opportunities, principally related to its NAM business and where it might provide other value-added services.

Cash flow before financing activities is expected to be strong in 2017 but decrease significantly in both the second half and for the full year compared with the same periods in 2016. Capital expenditures are estimated to be approximately $15 million in 2017, of which $5.7 million was expended in the first half of 2017.

HAMILTON BEACH BRANDS, INC.

HBB’s business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of consumer, commercial and specialty small appliances to retailers and consumers increase significantly for the fall holiday-selling season.

FINANCIAL REVIEW

The results of operations for HBB were as follows for the three and six months ended June 30:



	THREE MONTHS				SIX MONTHS
	2017		2016		2017		2016
Revenues	$	127,574	$	127,054	$	241,728	$	242,794
Operating profit	$	5,164	$	4,696	$	5,946	$	4,763
Interest expense	$	383	$	323

NACCO INDUSTRIES INC - FORM 10-Q - August 1, 2017

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