NACCO INDUSTRIES INC - Quarter Report: 2019 June (Form 10-Q)

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, 2019



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)

Securities registered pursuant to Section 12(b) of the Act



Title of each class	Trading Symbol	Name of each exchange on which registered
Class A Common Stock, $1 par value per share	NC	New York Stock Exchange

Class B Common Stock is not publicly listed for trade on any exchange or market system; however, Class B Common Stock is convertible into Class A Common Stock on a share-for-share basis.

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 every Interactive Data File required to be submitted 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 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 þ	Emerging growth company o

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 26, 2019: 5,421,134

Number of shares of Class B Common Stock outstanding at July 26, 2019: 1,568,780

NACCO INDUSTRIES, INC.

TABLE OF CONTENTS



			Page Number
Part I.	FINANCIAL INFORMATION

	Item 1	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets	2

		Unaudited Condensed Consolidated Statements of Operations	3

		Unaudited Condensed Consolidated Statements of Comprehensive Income	4

		Unaudited Condensed Consolidated Statements of Cash Flows	5

		Unaudited Condensed Consolidated Statement of Changes in Equity	6

		Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

	Item 3	Quantitative and Qualitative Disclosures About Market Risk	27

	Item 4	Controls and Procedures	27

Part II.	OTHER INFORMATION

	Item 1	Legal Proceedings	29

	Item 1A	Risk Factors	29

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	29

	Item 3	Defaults Upon Senior Securities	29

	Item 4	Mine Safety Disclosures	29

	Item 5	Other Information	29

	Item 6	Exhibits	30

	Exhibit Index		30

	Signatures		31

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Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS



	JUNE 30 2019			DECEMBER 31 2018
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	98,423		$	85,257
Trade accounts receivable, net	19,043			20,817
Accounts receivable from affiliates	7,232			7,999
Inventories	30,876			31,209
Assets held for sale	5,116			4,330
Prepaid expenses and other	14,891			14,562
Total current assets	175,581			164,174
Property, plant and equipment, net	122,327			124,554
Intangibles, net	38,987			40,516
Investments in unconsolidated subsidiaries	22,373			20,091
Deferred costs	3,185			3,244
Operating lease right-of-use assets	12,095			—
Other non-current assets	24,632			24,412
Total assets	$	399,180		$	376,991
LIABILITIES AND EQUITY
Accounts payable	$	7,703		$	7,746
Accounts payable to affiliates	344			1,653
Revolving credit agreements	4,000			4,000
Current maturities of long-term debt	499			654
Asset retirement obligations	1,826			1,826
Accrued payroll	17,393			19,853
Deferred compensation	13,465			—
Other current liabilities	7,937			6,516
Total current liabilities	53,167			42,248
Long-term debt	7,503			6,367
Operating lease liabilities	12,990			—
Asset retirement obligations	30,562			35,877
Pension and other postretirement obligations	9,711			10,429
Deferred income taxes	6,241			2,846
Deferred compensation	—			12,939
Other long-term liabilities	6,856			15,581
Total liabilities	127,030			126,287
Stockholders' equity
Common stock:
Class A, par value $1 per share, 5,421,134 shares outstanding (December 31, 2018 - 5,352,590 shares outstanding)	5,421			5,352
Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,568,780 shares outstanding (December 31, 2018 - 1,568,810 shares outstanding)	1,569			1,569
Capital in excess of par value	7,734			7,042
Retained earnings	270,865			250,352
Accumulated other comprehensive loss	(13,439		)	(13,611		)
Total stockholders' equity	272,150			250,704
Total liabilities and equity	$	399,180		$	376,991

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
	2019			2018			2019			2018
	(In thousands, except per share data)
Revenues	$	41,352		$	33,681		$	81,449		$	64,881
Cost of sales	32,684			28,835			59,396			54,611
Gross profit	8,668			4,846			22,053			10,270
Earnings of unconsolidated operations	14,143			15,423			30,413			30,978
Operating expenses
Selling, general and administrative expenses	12,788			11,863			25,441			22,490
Amortization of intangible assets	881			814			1,528			1,498
Gain on sale of assets	(19		)	(210		)	(37		)	(263		)
	13,650			12,467			26,932			23,725
Operating profit	9,161			7,802			25,534			17,523
Other (income) expense
Interest expense	222			569			453			1,215
Interest income	(581		)	(119		)	(1,134		)	(232		)
Income from other unconsolidated affiliates	(323		)	(318		)	(645		)	(633		)
Closed mine obligations	330			343			696			722
Gain on equity securities	(261		)	(183		)	(959		)	(85		)
Other, net	11			(71		)	22			(25		)
	(602		)	221			(1,567		)	962
Income before income tax provision	9,763			7,581			27,101			16,561
Income tax provision	1,788			1,188			4,108			1,992
Net income	$	7,975		$	6,393		$	22,993		$	14,569

Earnings per share:
Basic earnings per share	$	1.14		$	0.92		$	3.30		$	2.11
Diluted earnings per share	$	1.14		$	0.92		$	3.29		$	2.10

Basic weighted average shares outstanding	6,986			6,940			6,965			6,914
Diluted weighted average shares outstanding	6,986			6,940			6,993			6,939

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
	2019		2018		2019		2018
	(In thousands)
Net income	$	7,975	$	6,393	$	22,993	$	14,569
Reclassification of pension and postretirement adjustments into earnings, net of $21 and $45 tax benefit in the three and six months ended June 30, 2019, respectively, net of $26 and $61 tax benefit in the three and six months ended June 30, 2018, respectively.	71		105		172		245
Total other comprehensive income	71		105		172		245
Comprehensive income	$	8,046	$	6,498	$	23,165	$	14,814

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
	2019			2018
	(In thousands)
Operating activities
Net cash provided by operating activities	$	22,088		$	18,696

Investing activities
Expenditures for property, plant and equipment	(5,967		)	(9,182		)
Proceeds from the sale of property, plant and equipment	37			274
Other	(22		)	628
Net cash used for investing activities	(5,952		)	(8,280		)

Financing activities
Additions to long-term debt	1,218			691
Reductions of long-term debt	(323		)	(30,411		)
Cash dividends paid	(2,480		)	(2,289		)
Purchase of treasury shares	(1,385		)	(55		)
Net cash used for financing activities	(2,970		)	(32,064		)

Cash and cash equivalents
Total increase (decrease) for the period	13,166			(21,648		)
Balance at the beginning of the period	85,257			101,600
Balance at the end of the period	$	98,423		$	79,952

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			Deferred Gain (Loss) on Equity Securities				Pension and Postretirement Plan Adjustment				Total Stockholders' Equity
	(In thousands, except per share data)
Balance, January 1, 2018	$	5,282		$	1,570		$	4,447		$	216,490			$	2,727			$	(11,068	)	$	219,448
ASC 606 adoption (See Note 2)	—			—			—			(2,075		)		—				—			(2,075		)
ASU 2016-01 adoption	—			—			—			2,727				(2,727		)		—			—
ASU 2018-02 adoption	—			—			—			2,339				—				(2,179		)	160
Stock-based compensation	87			—			90			—				—				—			177
Net income	—			—			—			8,176				—				—			8,176
Cash dividends on Class A and Class B common stock: $0.1650 per share	—			—			—			(1,144		)		—				—			(1,144		)
Reclassification adjustment to net income, net of tax	—			—			—			—				—				140			140
Balance, March 31, 2018	$	5,369		$	1,570		$	4,537		$	226,513			$	—			$	(13,107	)	$	224,882
Stock-based compensation	7			—			785			—				—				—			792
Purchase of treasury shares	(2		)	—			(53		)	—				—				—			(55		)
Conversion of Class B to Class A shares	1			(1		)	—			—				—				—			—
Net income	—			—			—			6,393				—				—			6,393
Cash dividends on Class A and Class B common stock: $0.1650 per share	—			—			—			(1,145		)		—				—			(1,145		)
Reclassification adjustment to net income, net of tax	—			—			—			—				—				105			105
Balance, June 30, 2018	$	5,375		$	1,569		$	5,269		$	231,761			$	—			$	(13,002	)	$	230,972

Balance, January 1, 2019	$	5,352		$	1,569		$	7,042		$	250,352			$	—			$	(13,611	)	$	250,704
Stock-based compensation	102			—			795			—				—				—			897
Purchase of treasury shares	(36		)	—			(1,264		)	—				—				—			(1,300		)
Net income	—			—			—			15,018				—				—			15,018
Cash dividends on Class A and Class B common stock: $0.1650 per share	—			—			—			(1,153		)		—				—			(1,153		)
Reclassification adjustment to net income, net of tax	—			—			—			—				—				101			101
Balance, March 31, 2019	$	5,418		$	1,569		$	6,573		$	264,217			$	—			$	(13,510	)	$	264,267
Stock-based compensation	5			—			1,244			—				—				—			1,249
Purchase of treasury shares	(2		)	—			(83		)	—				—				—			(85		)
Net income	—			—			—			7,975				—				—			7,975
Cash dividends on Class A and Class B common stock: $0.1900 per share	—			—			—			(1,327		)		—				—			(1,327		)
Reclassification adjustment to net income, net of tax	—			—			—			—				—				71			71
Balance, June 30, 2019	$	5,421		$	1,569		$	7,734		$	270,865			$	—			$	(13,439	)	$	272,150

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, 2019

(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. NACCO is the public holding company for The North American Coal Corporation ("NACoal"). In the first quarter of 2019, the Company changed its segment reporting to three operating segments: Coal Mining, North American Mining (“NAMining”) and Minerals Management. The Company also has unallocated items not directly attributable to a reportable segment. Prior to January 1, 2019, NACoal was the Company’s operating segment. NACCO and Other, which included parent company operations and Bellaire Corporation (“Bellaire”), was the Company’s non-operating segment. Historical financial information for 2018 has been recast to conform to the current presentation. See Note 9 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

The Company’s operating segments are further described below:

Coal Mining Segment

The operating coal mines are: Bisti Fuels 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”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”). Liberty Fuels Company, LLC (“Liberty”) ceased all mining and delivery of lignite in 2017 and commenced final mine reclamation in 2018. Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015.

At all operating coal mines other than MLMC, the Company operates as a contract miner pursuant to a “management fee” contract. Under these long-term contracts, the customer is responsible for funding all mine operating costs and directly or indirectly provides all of the capital required to build and operate the mine. Debt financing provided by or supported by the customers is without recourse to NACCO and NACoal. As a result, these contracts meet the definition of a variable interest entity (“VIE”). NACCO is not the primary beneficiary of the VIE as it does not exercise financial control; therefore, NACCO does not consolidate the results of these operations within its financial statements. Instead, these contracts are accounted for as equity method investments. The income before income taxes is reported as Earnings of unconsolidated operations on the Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in Unconsolidated Subsidiaries in the Consolidated Balance Sheets. The mines that meet the definition of a VIE are referred to collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the NACCO consolidated U.S. tax return; therefore, the income tax expense line on the statements of operations includes taxes related to these entities. All of the Unconsolidated Subsidiaries are accounted for under the equity method. See Note 7 for further discussion. MLMC and Centennial are consolidated operations.

The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial are owned or controlled by the Company. The coal reserves at all other mines are owned or controlled by the respective mine’s customer. The Unconsolidated Subsidiaries are paid a management fee per ton of coal or heating unit (MMBtu) delivered. Each contract specifies the indices and mechanics by which fees change over time, generally in line with broad measures of U.S. inflation. This contract structure eliminates exposure to spot coal market price fluctuations.

NAMining Segment

NAMining operates primarily at limestone quarries in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone. NAMining operates under both management fee contracts and contracts that provide for a fixed per ton sales price. Income before income taxes for NAMining locations are consolidated within NACCO’s consolidated financial statements or are unconsolidated and included on the line Earnings of unconsolidated operations, depending on how each contract is structured. All of the Unconsolidated Subsidiaries are accounted for under the equity method. See Note 7 for further discussion.

Minerals Management Segment

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acquired as part of its historical coal mining operations. The Minerals Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a lesser extent, oil and coal. Specialized employees in the Minerals Management segment also provide surface and mineral acquisition and lease maintenance services related to Company operations.

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, 2019, the results of its operations, comprehensive income, cash flows and changes in equity for the six months ended June 30, 2019 and 2018 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, 2018.

The balance sheet at December 31, 2018 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.

NOTE 2—Recently Issued Accounting Standards

Accounting Standards Adopted in 2019: NACCO adopted Accounting Standard Update ("ASU") 2016-02, Leases (Topic 842), which is codified in Accounting Standards Codification 842, Leases (“ASC 842”), on January 1, 2019, using the modified retrospective transition method (the "guidance").

The most significant effect to the Unaudited Condensed Consolidated Balance Sheet relates to the recognition of new right-of-use assets (“ROU assets”) and lease liabilities for operating leases of real estate, mining and other equipment that expire at various dates through 2031. The majority of the Company's leases are operating leases. See the table below for further information on the Unaudited Condensed Consolidated Balance Sheet. Many leases include renewal and/or fair value or bargain purchase options, which are not recognized on the Unaudited Condensed Consolidated Balance Sheet. There was no cumulative effect adjustment to the opening balance of retained earnings. The adoption of this guidance did not have a material effect on the Company’s results of operations, cash flows, liquidity or debt-covenant compliance. NACCO did not apply the standard to the comparative periods presented in the year of adoption.

The Company elected many of the available practical expedients permitted under the guidance, which among other items, allow the Company to carry forward its historical lease classification and not reassess leases for the definition of a lease under the new standard. The Company also elected the practical expedient to carry forward the historical accounting treatment for existing land easement agreements. Upon the adoption of ASC 842, NACCO did not record a ROU asset and related lease liability for leases with an initial term of 12 months or less.

Leased assets and liabilities include the following:



Description	Location	JUNE 30 2019
Assets
Operating	Operating lease right-of-use assets	$	12,095
Finance	Property, plant and equipment, net ^(a)	343

Liabilities
Current
Operating	Other current liabilities	$	1,440
Finance	Current maturities of long-term debt	268
Noncurrent
Operating	Operating lease liabilities	12,990
Finance	Long-term debt	101

^(a)Finance leased assets are recorded net of accumulated amortization of $2.9 million as of June 30, 2019.

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The components of lease expense were as follows:



		THREE MONTHS ENDED		SIX MONTHS ENDED
		JUNE 30		JUNE 30
Description	Location	2019
Lease expense
Operating lease cost	Selling, general and administrative expenses	$	589	$	1,214
Finance lease cost:
Amortization of leased assets	Cost of sales	100		196
Interest on lease liabilities	Interest expense	3		6

Short-term lease expense	Selling, general and administrative expenses	89		163
Net lease expense		$	781	$	1,579

Future minimum finance and operating lease payments were as follows at June 30, 2019:



	Finance Leases		Operating Leases		Total
Remainder of 2019	$	237	$	1,196	$	1,433
2020	58		2,229		2,287
2021	37		2,125		2,162
2022	37		2,150		2,187
2023	16		1,659		1,675
Subsequent to 2023	—		10,951		10,951
Total minimum lease payments	385		20,310		$	20,695
Amounts representing interest	16		5,880
Present value of net minimum lease payments	$	369	$	14,430

As most of the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The assumptions used in accounting for ASC 842 were as follows for the three and six months ended June 30, 2019:



	THREE MONTHS ENDED		SIX MONTHS ENDED
	June 30		June 30
Lease term and discount rate	2019
Weighted average remaining lease term (years)
Operating	9.89		9.89
Finance	1.76		1.76

Weighted average discount rate
Operating	6.97	%	6.97	%
Finance	5.15	%	5.15	%

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The following table details cash paid for amounts included in the measurement of lease liabilities for the three and six months ended June 30:



	THREE MONTHS ENDED		SIX MONTHS ENDED
	June 30		June 30
Cash paid for amounts included in the measurement of lease liabilities	2019
Operating cash flows from operating leases	$	587	$	1,160
Operating cash flows from finance leases	3		6
Financing cash flows from finance leases	110		232

NOTE 3—Revenue Recognition

Nature of Performance Obligations

At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

Each mine or mine area has a contract with its respective customer that represents a contract under ASC 606. For its consolidated entities, the Company’s performance obligations vary by contract and consist of the following:

At MLMC, each MMBtu delivered during the production period is considered a separate performance obligation. Revenue is recognized at the point in time that control of each MMBtu of lignite transfers to the customer. Fluctuations in revenue from period to period generally result from changes in customer demand.

At NAMining entities, the management service to oversee the operation of the equipment and delivery of limestone is the performance obligation accounted for as a series. Performance momentarily creates an asset that the customer simultaneously receives and consumes; therefore, control is transferred to the customer over time. Consistent with the conclusion that the customer simultaneously receives and consumes the benefits provided, an input-based measure of progress is appropriate. As each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee and the general and administrative fee (as applicable). Fluctuations in revenue from period to period result from changes in customer demand and variances in reimbursable costs primarily due to increases and decreases in activity levels on individual contracts.

The Company enters into royalty contracts which grant the right to explore, develop, produce and sell minerals controlled by the Company. These arrangements result in the transfer of mineral rights for a period of time; however, no rights to the actual land are granted other than access for purposes of exploration, development, production and sales. The mineral rights revert back to the Company at the expiration of the contract.

Under these royalty contracts, granting exclusive right, title, and interest in and to minerals, if any, is the performance obligation. The performance obligation under these contracts represents a series of distinct goods or services whereby each day of access that is provided is distinct. The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of an up-front lease bonus payment. As the amount of consideration the Company will ultimately be entitled to is entirely susceptible to factors outside its control, the entire amount of variable consideration is constrained at contract inception. The fixed portion of the transaction price will be recognized over the primary term of the contract, which is generally five years.

Significant Judgments

The Company’s contracts with its customers contain different types of variable consideration including, but not limited to, management fees that adjust based on coal volumes or MMBtu delivered or limestone yards, however, the terms of these variable payments relate specifically to our efforts to satisfy one or more, but not all of, the performance obligations (or to a specific outcome from satisfying the performance obligations), in the contract. Therefore, the Company allocates each variable payment (and subsequent changes to that payment) entirely to the specific performance obligation to which it relates. Management fees, as well as general and administrative fees, are also adjusted based on changes in specified indices (e.g., CPI) to compensate for general inflation changes. Index adjustments, if applicable, are effective prospectively. Certain contracts include reimbursement of actual costs incurred.

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Disaggregation of Revenue

In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers into major goods and service lines and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s business consists of the Coal Mining, NAMining and Minerals Management segments as well as Unallocated Items. See Note 9 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

The following table disaggregates revenue by major sources:



	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30						JUNE 30
Major Goods/Service Lines	2019			2018			2019			2018
Coal Mining	$	22,570		$	20,860		$	39,320		$	38,457
NAMining	10,728			9,067			21,503			19,280
Minerals Management	8,242			3,866			20,928			7,342
Unallocated Items	131			—			674			—
Eliminations	(319		)	(112		)	(976		)	(198		)
Total revenues	$	41,352		$	33,681		$	81,449		$	64,881

Timing of Revenue Recognition
Goods transferred at a point in time	$	21,879		$	20,174		$	37,964		$	37,195
Services transferred over time	19,473			13,507			43,485			27,686
Total revenues	$	41,352		$	33,681		$	81,449		$	64,881

Contract Balances

The opening and closing balances of the Company’s current and long-term contract liabilities and receivables are as follows:



	Contract balances
	Trade accounts receivable, net			Contract liability (current)			Contract liability (long-term)
Balance, January 1, 2019	$	20,817		$	754		$	2,008
Balance, June 30, 2019	19,043			706			1,660
Increase (decrease)	$	(1,774	)	$	(48	)	$	(348	)

As described above, the Company enters into royalty contracts that grant exclusive right, title, and interest in and to minerals. The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of an up-front lease bonus payment. The timing of the payment of the fixed portion of the transaction price is upfront, however, the performance obligation is satisfied over the primary term of the contract, which is generally five years. Therefore, at the time any such up-front payment is received, a contract liability is recorded which represents deferred revenue. The difference between the opening and closing balance of this contract liability, which is shown above, primarily results from the difference between new lease bonus payments received and amortization of up-front lease bonus payments received in previous periods.

The amount of revenue recognized in the three months ended June 30, 2019 and June 30, 2018 that was included in the opening contract liability was $0.2 million and $0.3 million, respectively. The amount of revenue recognized in the six months ended June 30, 2019 and June 30, 2018 was $0.4 million and $0.6 million, respectively. This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are generally five years. The Company expects to recognize an additional $0.4 million in the remainder of 2019, $0.7 million in both 2020 and 2021, $0.5 million in 2022, and $0.1 million in 2023 related to the contract liability remaining at June 30, 2019. The difference between the opening and closing balances of the Company’s accounts receivable and contract liabilities results from the timing difference between the Company’s performance and the customer’s payment. Contracts with payments in arrears are recognized as receivables.

The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer.

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NOTE 4—Inventories

Inventories are summarized as follows:



	JUNE 30 2019		DECEMBER 31 2018
Coal	$	7,752	$	11,030
Mining supplies	23,124		20,179
Total inventories	$	30,876	$	31,209

NOTE 5—Stockholders' Equity

Stock Repurchase Program: On February 14, 2018, the Company's Board of Directors approved a stock repurchase program ("2018 Stock Repurchase Program") providing for the repurchase of up to $25 million of the Company's outstanding Class A Common Stock through December 31, 2019. During the three and six months ended June 30, 2019, the Company repurchased 2,230 and 38,524 shares, respectively, of Class A Common Stock under the 2018 Stock Repurchase Program for an aggregate purchase price of $0.1 million and $1.4 million, respectively. During the three and six months ended June 30, 2018, the Company repurchased 1,668 shares of Class A Common Stock under the 2018 Stock Repurchase Program for an aggregate purchase price of $0.1 million. The timing and amount of any repurchases under the 2018 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, market conditions for the Company's Class A Common Stock and other legal and contractual restrictions. The 2018 Stock Repurchase Program does not require the Company to acquire any specific number of shares and may be modified, suspended, extended or terminated by the Company without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2018 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 restricted from doing so under applicable securities laws.

NOTE 6—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, 2019
Assets:
Equity securities	$	9,445	$	9,445	$	—	$	—
	$	9,445	$	9,445	$	—	$	—

	December 31, 2018
Assets:
Equity securities	$	8,716	$	8,716	$	—	$	—
	$	8,716	$	8,716	$	—	$	—

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. Prior to 2018, 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 equity 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 Mine Water Treatment Trust realized a gain of $0.3 million and $1.0 million in the three and six months ended June 30, 2019, respectively, and a gain of $0.2 million and $0.1 million in the three and six months ended June 30, 2018, respectively. These gains/losses are reported on the line gain on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

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There were no transfers into or out of Levels 1, 2 or 3 during the six months ended June 30, 2019 and 2018.

NOTE 7—Unconsolidated Subsidiaries

Each of NACoal's wholly owned Unconsolidated Subsidiaries meet the definition of a VIE. The Unconsolidated Subsidiaries are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. Although NACoal owns 100% of the equity and manages the daily operations of the Unconsolidated Subsidiaries, 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. See Note 1 for a discussion of these entities.

The investment in the unconsolidated subsidiaries and related tax positions totaled $22.4 million and $20.1 million at June 30, 2019 and December 31, 2018, respectively. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $5.4 million and $4.4 million at June 30, 2019 and December 31, 2018, 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 NACoal would be required to perform 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
	2019		2018		2019		2018
Revenues	$	177,883	$	182,018	$	365,122	$	365,064
Gross profit	$	14,631	$	20,405	$	33,767	$	41,468
Income before income taxes	$	14,516	$	15,456	$	31,253	$	31,578

NOTE 8—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. 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.

NOTE 9—Business Segments

In the first quarter of 2019, the Company changed its reportable segments to reflect changes in the business, including growth at NAMining and Minerals Management. The Company modified its internal reporting structure to reflect a change in how its Chief Operating Decision Maker (“CODM”) assesses Company performance and makes decisions about resource allocations.

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As of January 1, 2019, the Company’s operating segments are: (i) Coal Mining, (ii) NAMining and (iii) Minerals Management. While the Company continues to pursue opportunities to add new coal mining operations to the Coal Mining segment, the NAMining segment will serve as the platform for pursuing non-coal mining projects and the Minerals Management segment will work to capitalize on the Company’s oil, gas and coal reserves. In response to these changes, the Company determined the historical structure of reporting one operating segment was no longer representative of the way the business is managed. As a result, the Company effected a change in the reporting of its segment information.

The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component. The Company’s CODM utilizes operating profit to evaluate segment performance and allocate resources. Operating profit for each segment includes an allocation of shared costs based on a reasonable measure of utilization.

The Company also has unallocated items not directly attributable to a reportable segment which are not included as part of the measurement of segment operating profit, primarily administrative costs related to public company reporting requirements, the financial results of the Company’s mitigation banking business, Mitigation Resources of North America (“MRNA”), and Bellaire. MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation. Bellaire manages the Company’s long-term liabilities related to former Eastern U.S. underground mining activities. Transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations and are eliminated in consolidation.

All financial statement line items below operating profit (other income including interest expense and interest income, the provision for income taxes and net income) are presented and discussed within this Form 10-Q on a consolidated basis. Included within other income on the line Income from other unconsolidated affiliates within the Unaudited Condensed Consolidated Statements of Operations is the financial results of NoDak Energy Services, LLC ("NoDak"). NoDak operates and maintains a coal drying system at a customer’s power plant. The NoDak contract expires in the first quarter of 2020.

See Note 1 for additional discussion of the Company's reportable segments. The following tables present revenue, operating profit, depreciation expense and capital expenditures:



	THREE MONTHS ENDED						SIX MONTHS ENDED
	JUNE 30						JUNE 30
	2019			2018			2019			2018
Revenues
Coal Mining	$	22,570		$	20,860		$	39,320		$	38,457
NAMining	10,728			9,067			21,503			19,280
Minerals Management	8,242			3,866			20,928			7,342
Unallocated Items	131			—			674			—
Eliminations	(319		)	(112		)	(976		)	(198		)
Total	$	41,352		$	33,681		$	81,449		$	64,881

Operating profit (loss)
Coal Mining	$	4,693		$	7,898		$	12,298		$	16,595
NAMining	(483		)	157			(451		)	791
Minerals Management	6,789			3,212			18,458			6,156
Unallocated Items	(2,130		)	(3,465		)	(4,829		)	(6,019		)
Eliminations	292			—			58			—
Total	$	9,161		$	7,802		$	25,534		$	17,523

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Expenditures for property, plant and equipment
Coal Mining	$	1,623	$	3,850	$	5,493	$	4,426
NAMining	—		2,557		—		3,231
Minerals Management	50		150		291		1,182
Unallocated Items	42		173		183		343
Total	$	1,715	$	6,730	$	5,967	$	9,182

Depreciation, depletion and amortization
Coal Mining	$	3,276	$	3,092	$	6,150	$	5,933
NAMining	566		427		1,111		822
Minerals Management	367		178		733		312
Unallocated Items	29		27		57		53
Total	$	4,238	$	3,724	$	8,051	$	7,120

NOTE 10—Asset Retirement Obligations

The Company's asset retirement obligations are principally for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities as well as for costs to dismantle certain mining equipment at the end of the life of the mine. A reconciliation of the Company's beginning and ending aggregate carrying amount of the asset retirement obligations are as follows:



	Asset Retirement Obligations
Balance at December 31, 2018	$	37,703
Liabilities settled during the period	(3,587		)
Accretion expense	1,258
Revision of estimated cash flows	(2,986		)
Balance at June 30, 2019	$	32,388

During the second quarter of 2019, the Company transferred the mine permits for certain Centennial mines to an unrelated third party. As a result of these transfers, the Company was relieved of the associated mine reclamation obligations and recorded a $5.4 million reduction to Centennial's asset retirement obligation, $2.4 million of which is reflected as "Liabilities settled during the current period" and $3.0 million of which is reflected as "Revisions in estimated cash flows" in the table above. As part of these transactions, the Company transferred a $3.4 million escrow account and paid $2.4 million of cash, resulting in a net loss on the transactions of $0.4 million recognized within cost of sales in the Unaudited Condensed Consolidated Statement of Operations.

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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)

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements."

Management's Discussion and Analysis of Financial Condition and Results of Operations includes NACCO Industries, Inc. (“NACCO”) and its wholly owned subsidiaries (collectively, the “Company”). NACCO is the public holding company for The North American Coal Corporation ("NACoal"). The Company has three operating segments: (i) Coal Mining, (ii) North American Mining ("NAMining") and (iii) Minerals Management. The Company also has unallocated items not directly attributable to a reportable segment which are not included as part of the measurement of segment operating profit, primarily administrative costs related to public company reporting requirements, the financial results of the Company’s mitigation banking business, Mitigation Resources of North America (“MRNA”), and Bellaire Corporation (“Bellaire”). MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation. Bellaire manages the Company’s long-term liabilities related to former Eastern U.S. underground mining activities.

All financial statement line items below operating profit (other income, including interest expense and interest income, the provision for income taxes and net income) are presented and discussed within this Form 10-Q on a consolidated basis. Included within other income on the line Income from other unconsolidated affiliates is the financial results of NoDak Energy Services, LLC ("NoDak"). NoDak operates and maintains a coal drying system at a customer’s power plant. The NoDak contract expires in the first quarter of 2020.

The Company’s operating segments are further described below:

Coal Mining Segment

The Coal Mining segment operates surface coal mines pursuant to a service-based business model under long-term contracts with power generation companies and activated carbon producers. Coal is surface-mined in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico. Each mine is fully integrated with its customer operations.

Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015. Since 2015, the Company has sold or transferred certain Centennial equipment and mineral reserves. The Company continues to evaluate strategies for the remaining mineral reserves and a dragline, although the book value of the remaining mineral reserves and the dragline was reduced to zero in years prior to 2018. Cash expenditures related to mine reclamation at Centennial will continue until mine reclamation is complete, or ownership of, or responsibility for, the remaining mines is transferred.

Coteau, Coyote, Falkirk, MLMC and Sabine supply lignite coal for power generation. Bisti and Camino Real supply sub-bituminous and bituminous coal, respectively, for power generation. Caddo Creek and Demery supply lignite coal for the production of activated carbon. Each of these mines deliver their coal production to adjacent or nearby power plants, synfuels plants or activated carbon processing facilities under long-term supply contracts. With the exception of Camino Real, each mine is the exclusive supplier of coal to its customers' facilities. Camino’s customer takes all coal produced by the mine but also purchases additional coal from other suppliers.

This segment has a strong history of customer retention due to the long-term nature of its contracts and the proximity of the Company’s mines to its customers’ facilities. With the exception of Camino Real, whose contract expires in 2021 but has renewal provisions, other contract expiration dates range from 2022 through 2045. The contract that expires in 2022 may be extended for three additional periods of five years each, or until 2037, at NACoal’s option.

At all operating coal mines other than MLMC, the Company operates as a contract miner pursuant to a management fee contract. Under these long-term contracts, the customer is responsible for funding all mine operating costs and directly or

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indirectly provides all of the capital required to build and operate the mine. Debt financing provided by or supported by the customers is without recourse to NACCO and NACoal. As a result, these contracts meet the definition of a variable interest entity (“VIE”). NACCO is not the primary beneficiary of the VIE as it does not exercise financial control; therefore, NACCO does not consolidate the results of these operations within its financial statements. Instead, these contracts are accounted for as equity method investments. The income before income taxes is reported as Earnings of unconsolidated operations on the Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in Unconsolidated Subsidiaries in the Consolidated Balance Sheets. The mines that meet the definition of a VIE are referred to collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the NACCO consolidated U.S. tax return; therefore, the income tax expense line on the statements of operations includes taxes related to these entities. All of the Unconsolidated Subsidiaries are accounted for under the equity method. MLMC and Centennial are consolidated operations.

The Company performs contemporaneous reclamation activities at each mine in the normal course of operations. Under all of the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities. Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities. To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those services in addition to receiving reimbursement for costs incurred.

The MLMC contract is the only operating coal contract in which NACoal is responsible for all operating costs, capital requirements and final mine reclamation; therefore, MLMC is consolidated within NACCO’s financial statements. 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. Profitability at MLMC is affected by customer demand for coal, changes in the indices that determine sales price and actual costs incurred. As diesel fuel is heavily weighted among the indices used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.

Centennial is also a consolidated entity within the Coal Mining segment as NACoal is responsible for carrying costs and final mine reclamation.

North American Mining Segment

The NAMining segment provides value-added contract mining services for producers of aggregates and other minerals, primarily by operating and maintaining draglines and other equipment. The segment is the primary platform for the Company’s growth and diversification outside of the coal industry.

NAMining provides contract mining services for independently owned quarries, creating value for its customers by performing the mining aspects of its customers’ quarry operations. This allows customers to focus on their areas of expertise: materials handling and processing, product sales and distribution.

Minerals Management Segment

The Minerals Management segment promotes the development of the Company’s oil, gas and coal reserves, generating income primarily from royalty-based lease payments from third parties. The Company’s gas, oil and coal reserves are located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas), Mississippi, Pennsylvania, Alabama and North Dakota (coal). The majority of the Company’s existing reserves were acquired as part of its historical coal mining operations. The Minerals Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a lesser extent, oil and coal. Specialized employees in the Minerals Management segment also provide surface and mineral acquisition and lease maintenance services related to Company operations.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

As of January 1, 2019, the Company has updated its lease accounting policy in connection with the adoption of ASC 842 as further described in Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements. Please also refer to the discussion of the Company's Critical Accounting Policies and Estimates as disclosed on pages 26 through 28 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The Company's remaining Critical Accounting Policies and Estimates have not materially changed since December 31, 2018.

CONSOLIDATED FINANCIAL SUMMARY

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



	THREE MONTHS						SIX MONTHS
	2019			2018			2019			2018
Revenues:
Coal Mining	$	22,570		$	20,860		$	39,320		$	38,457
NAMining	10,728			9,067			21,503			19,280
Minerals Management	8,242			3,866			20,928			7,342
Unallocated Items	131			—			674			—
Eliminations	(319		)	(112		)	(976		)	(198		)
Total revenue	$	41,352		$	33,681		$	81,449		$	64,881
Operating profit (loss):
Coal Mining	$	4,693		$	7,898		$	12,298		$	16,595
NAMining	(483		)	157			(451		)	791
Minerals Management	6,789			3,212			18,458			6,156
Unallocated Items	(2,130		)	(3,465		)	(4,829		)	(6,019		)
Eliminations	292			—			58			—
Total operating profit	$	9,161		$	7,802		$	25,534		$	17,523
Interest expense	222			569			453			1,215
Interest income	(581		)	(119		)	(1,134		)	(232		)
Income from other unconsolidated affiliates	(323		)	(318		)	(645		)	(633		)
Closed mine obligations	330			343			696			722
Gain on equity securities	(261		)	(183		)	(959		)	(85		)
Other, net	11			(71		)	22			(25		)
Other (income) expense, net	(602		)	221			(1,567		)	962
Income before income tax provision	9,763			7,581			27,101			16,561
Income tax provision	1,788			1,188			4,108			1,992
Net income	$	7,975		$	6,393		$	22,993		$	14,569

Effective income tax rate	18.3		%	15.7		%	15.2		%	12.0		%

The components of the change in revenues and operating profit are discussed below in "Segment Results."

Second Quarter of 2019 Compared with Second Quarter of 2018 and First Six Months of 2019 Compared with First Six Months of 2018

Other (income) expense, net

Interest expense decreased $0.3 million and $0.8 million, respectively, due to lower average borrowings under NACoal's revolving credit facility during the second quarter and the first six months of 2019 compared with the 2018 periods.

Interest income increased $0.5 million and $0.9 million, respectively, during the second quarter and the first six months of 2019 compared with the 2018 periods due to increased income earned on invested cash.

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Gain on equity securities increased due to higher gains on invested assets of Bellaire's Mine Water Treatment Trust in the three and six months ended June 30, 2019 compared with 2018. See Note 6 to the Unaudited Condensed Consolidated Financial Statements for further discussion of the Mine Water Treatment Trust.

Income Taxes

The Company evaluates and updates its estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of actual earnings compared to projections of earnings between entities that benefit from percentage depletion and those that do not, the effective tax rate may vary quarterly. The quarterly income tax provision is generally comprised of tax expense on income or a benefit on a loss at the most recent estimated annual effective income tax rate, adjusted for the effect of discrete items. The increase in the effective income tax rate in 2019 compared with 2018 is primarily due to a change in the mix of earnings, including increased royalty income.

LIQUIDITY AND CAPITAL RESOURCES OF NACCO

Cash Flows

The amount of and dollar values associated with intercompany transactions can be significant since the income taxes resulting from the operations of the Unconsolidated Subsidiaries are solely the responsibility of the Company. At a segment level, these intercompany transactions can impact net cash used for operating activities. As a result, the Company analyzes cash flows on a consolidated basis.

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



	2019			2018			Change
Operating activities:
Net cash provided by operating activities	$	22,088		$	18,696		$	3,392

Investing activities:
Expenditures for property, plant and equipment	(5,967		)	(9,182		)	3,215
Other	15			902			(887		)
Net cash used for investing activities	(5,952		)	(8,280		)	2,328
Cash flow before financing activities	$	16,136		$	10,416		$	5,720

The $3.4 million increase in net cash provided by operating activities was primarily the result of the increase in net income, partially offset by working capital changes. During the first six months of 2019, NACCO used $8.7 million of cash for working capital compared with $3.3 million during the first six months of 2018. The increase in cash used for working capital was primarily due to a change in timing of accounts payable and accounts payable to affiliates.

The change in net cash used for investing activities was primarily attributable to a decrease in expenditures for property, plant and equipment in the NAMining segment, partially offset by an increase in expenditures in the Coal segment.



	2019			2018			Change
Financing activities:
Net additions (reductions) to long-term debt and revolving credit agreement	$	895		$	(29,720	)	$	30,615
Cash dividends paid	(2,480		)	(2,289		)	(191		)
Purchase of treasury shares	(1,385		)	(55		)	(1,330		)
Net cash used for financing activities	$	(2,970	)	$	(32,064	)	$	29,094

The change in net cash used for financing activities was primarily due to a repayment of borrowings during the first six months of 2018.

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Financing Activities

Financing arrangements are obtained and maintained at the NACoal level. NACCO has not guaranteed any borrowings of NACoal. The borrowing agreements at NACoal allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by NACoal's borrowing agreement) and management fees are the primary sources of cash for NACCO and enable the Company to pay dividends to stockholders.

The Company believes funds available from cash on hand, 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.

NACoal has an unsecured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in August 2022. Borrowings outstanding under the NACoal Facility were $4.0 million at June 30, 2019. At June 30, 2019, the excess availability under the NACoal Facility was $144.6 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 NACoal 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, 2019, 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 0.30% on the unused commitment at June 30, 2019.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of 3.00 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 2.00 to 1.00, or if greater than 2.00 to 1.00, a Fixed Charge Coverage Ratio of 1.10 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, 2019, NACoal was in compliance with all financial covenants in the NACoal Facility.

Capital Expenditures

Expenditures for property, plant and equipment were $6.0 million during the first six months of 2019. NACCO estimates that its capital expenditures for the remainder of 2019 could be up to $22.2 million primarily for NAMining dragline acquisition and relocation as well as spending at MLMC as its mine plan includes moving into a new mine area which will require increased capital expenditures over the next several years. These expenditures are expected to be funded from internally generated funds and/or bank borrowings.

Capital Structure

NACCO's consolidated capital structure is presented below:



	JUNE 30 2019			DECEMBER 31 2018			Change
Cash and cash equivalents	$	98,423		$	85,257		$	13,166
Net tangible assets	167,510			156,703			10,807
Intangible assets, net	38,987			40,516			(1,529		)
Net assets	304,920			282,476			22,444
Total debt	(12,002		)	(11,021		)	(981		)
Bellaire closed mine obligations	(20,768		)	(20,751		)	(17		)
Total equity	$	272,150		$	250,704		$	21,446
Debt to total capitalization	4%			4%			—%

The increase in net assets was primarily due to the increase in cash and net tangible assets. The increase in net tangible assets was mainly attributable to a decrease in compensation-related liabilities as a result of payments made during the first six months of 2019 and a decrease in asset retirement obligations during the first six months of 2019. See Note 10 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's asset retirement obligations.

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Contractual Obligations, Contingent Liabilities and Commitments

The Company has updated its lease accounting policy in connection with the adoption of ASC 842 as further described in Note 2 to the accompanying Unaudited Condensed Consolidated Financial Statements. Since December 31, 2018, there have been no significant changes in the total amount of NACCO's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 32 in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. See Note 7 to the Unaudited Condensed Consolidated Financial Statements for a discussion of certain guarantees related to Coyote Creek.

SEGMENT RESULTS

COAL MINING SEGMENT

FINANCIAL REVIEW

Tons of coal delivered by the Coal Mining segment were as follows for the three and six months ended June 30 (in millions):



	THREE MONTHS		SIX MONTHS
	2019	2018	2019	2018
Unconsolidated operations	6.9	8.0	15.5	16.5
Consolidated operations	0.9	0.8	1.5	1.5
Total tons delivered	7.8	8.8	17.0	18.0

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



	THREE MONTHS						SIX MONTHS
	2019			2018			2019			2018
Revenues	$	22,570		$	20,860		$	39,320		$	38,457
Total cost of sales	21,254			20,068			37,178			36,146
Gross profit	1,316			792			2,142			2,311
Earnings of unconsolidated operations^(a)	13,529			15,333			29,310			30,610
Selling, general and administrative expenses	9,283			7,623			17,656			15,051
Amortization of intangible assets	881			814			1,528			1,498
Gain on sale of assets	(12		)	(210		)	(30		)	(223		)
Operating profit	$	4,693		$	7,898		$	12,298		$	16,595

^(a)See Note 7 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Second Quarter of 2019 Compared with Second Quarter of 2018

Revenues

Revenues increased $1.7 million in the second quarter of 2019 compared with the second quarter of 2018 primarily due to an increase in tons delivered at MLMC as a result of increased customer requirements.

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Operating Profit

The following table identifies the components of change in operating profit for the second quarter of 2019 compared with the second quarter of 2018:



	Operating Profit
2018	$	7,898
Increase (decrease) from:
Earnings of unconsolidated operations	(1,804		)
Selling, general and administrative expenses	(1,660		)
Net gain on sale of assets	(198		)
Amortization of intangibles	(67		)
Gross profit	524
2019	$	4,693

Operating profit decreased $3.2 million in the second quarter of 2019 compared with the second quarter of 2018 primarily due to a decrease in earnings of unconsolidated operations and an increase in selling, general and administrative expenses. The decrease in earnings of unconsolidated operations was primarily due to fewer coal tons delivered as a result of customer plant outages. The increase in selling, general and administrative expenses was primarily attributable to an increase in, and the timing of, employee-related costs.

The decrease in operating profit was partially offset by improved results at the consolidated operations, primarily due to an increase in customer requirements and a reduction in cost per ton sold at MLMC, partially offset by a loss on the transfer of certain Centennial mine permits to an unrelated third party. As a result of these transfers, the Company was relieved of the associated mine reclamation obligations and recorded a $5.4 million reduction to Centennial's asset retirement obligation. As part of these transactions, the Company transferred a $3.4 million escrow account and paid $2.4 million of cash, resulting in a net loss on the transactions of $0.4 million recognized within cost of sales.

First Six Months of 2019 Compared with First Six Months of 2018

Revenues

Revenues increased $0.9 million in the first six months of 2019 compared with the first six months of 2018 primarily due to an increase in tons delivered at MLMC as a result of increased customer requirements.

Operating Profit

The following table identifies the components of change in operating profit for the first six months of 2019 compared with the first six months of 2018:



	Operating Profit
2018	$	16,595
Increase (decrease) from:
Selling, general and administrative expenses	(2,605		)
Earnings of unconsolidated operations	(1,300		)
Centennial asset retirement obligation revision in prior year	(960		)
Net gain on sale of assets	(193		)
Amortization of intangibles	(30		)
Gross profit, excluding asset retirement obligation revision in prior year	791
2019	$	12,298

Operating profit decreased $4.3 million in the first six months of 2019 compared with the first six months of 2018 primarily as a result of an increase in selling, general and administrative expenses, mainly due to higher employee-related expenses, a decrease in earnings of unconsolidated operations and revisions in Centennial's asset retirement obligation in the prior year.

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The decrease in earnings of unconsolidated operations was primarily due to fewer coal tons delivered as a result of customer plant outages, partially offset by an increase in coal tons delivered at Bisti. Coal deliveries at Bisti were reduced during the prior year while the power plant's owners were installing additional environmental controls.

The change in Centennial's asset retirement obligation is primarily due to the absence of a $1.0 million favorable revision that occurred during the prior year.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

Tons of limestone delivered by the NAMining segment were as follows for the three and six months ended June 30 (in millions):



	THREE MONTHS		SIX MONTHS
	2019	2018	2019	2018
Unconsolidated operations	2.5	1.6	4.4	3.5
Consolidated operations	9.3	9.4	19.1	19.5
Total tons delivered	11.8	11.0	23.5	23.0

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



	THREE MONTHS					SIX MONTHS
	2019			2018		2019			2018
Revenues	$	10,728		$	9,067	$	21,503		$	19,280
Total cost of sales	10,473			8,398		20,473			17,764
Gross profit	255			669		1,030			1,516
Earnings of unconsolidated operations^(a)	614			90		1,103			368
Selling, general and administrative expenses	1,359			602		2,591			1,132
Gain on sale of assets	(7		)	—		(7		)	(39		)
Operating (loss) profit	$	(483	)	$	157	$	(451	)	$	791

^(a)See Note 7 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Second Quarter of 2019 Compared with Second Quarter of 2018

Revenues

Revenues increased in the second quarter of 2019 compared with the second quarter of 2018 due to higher reimbursed costs. Reimbursed costs have an offsetting amount in cost of goods sold and have no impact on operating profit.

Operating (Loss) Profit

The following table identifies the components of change in operating (loss) profit for the second quarter of 2019 compared with the second quarter of 2018:



	Operating (Loss) Profit
2018	$	157
Increase (decrease) from:
Selling, general and administrative expenses	(757		)
Gross profit	(414		)
Earnings of unconsolidated operations	524
Net gain on sale of assets	7
2019	$	(483	)

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NAMining's operating profit decreased $0.6 million in the second quarter of 2019 compared with the second quarter of 2018 primarily as a result of an increase in selling, general and administrative expenses, which includes higher employee-related and business development costs, and a decrease in gross profit, primarily due to higher employee-related costs and an increase in supplies and repairs and maintenance expenses. These items were partially offset by an improvement in earnings of unconsolidated operations attributable to a new customer contract.

First Six Months of 2019 Compared with First Six Months of 2018

Revenues

Despite the decrease in deliveries at the consolidated operations, revenues increased in the first six months of 2019 compared with the first six months of 2018 due to higher reimbursed costs. Reimbursed costs have an offsetting amount in cost of goods sold and have no impact on operating profit.

Operating Profit

The following table identifies the components of change in operating profit for the first six months of 2019 compared with the first six months of 2018:



	Operating Profit
2018	$	791
Increase (decrease) from:
Selling, general and administrative expenses	(1,459		)
Gross profit	(486		)
Net gain on sale of assets	(32		)
Earnings of unconsolidated operations	735
2019	$	(451	)

NAMining's operating profit decreased $1.2 million in the first six months of 2019 compared with the first six months of 2018 primarily as a result of an increase in selling, general and administrative expenses, which includes additional employee-related and business development costs, and a decrease in gross profit, primarily due to higher employee-related costs and supplies expense. These items were partially offset by an improvement in earnings of unconsolidated operations attributable to a new customer contract.

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

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



	THREE MONTHS				SIX MONTHS
	2019		2018		2019		2018
Revenues	$	8,242	$	3,866	$	20,928	$	7,342
Total cost of sales	1,262		400		2,088		760
Gross profit	6,980		3,466		18,840		6,582
Selling, general and administrative expenses	191		254		382		427
Gain on sale of assets	—		—		—		(1		)
Operating profit	$	6,789	$	3,212	$	18,458	$	6,156

Second Quarter of 2019 Compared with Second Quarter of 2018 and First Six Months of 2019 Compared with First Six Months of 2018

Revenues and Operating Profit

Revenues and operating profit increased in the second quarter of 2019 and the first six months of 2019 compared with the 2018 periods, primarily due to a higher number of wells operated by third parties to extract natural gas from the Company's mineral reserves in Ohio. The number of producing wells increased as additional pipeline, gas compression, and other transportation

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infrastructure came online in southeast Ohio. The increase in operating profit was partially offset by an increase in cost of sales due to higher outside service fees.

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Operating Results

Unallocated Items and Eliminations were as follows for the three and six months ended June 30:



	THREE MONTHS						SIX MONTHS
	2019			2018			2019			2018
Operating loss	$	(1,838	)	$	(3,465	)	$	(4,771	)	$	(6,019	)

Second Quarter of 2019 Compared with Second Quarter of 2018

Operating Loss

The $1.6 million decrease in operating loss for the three months ended June 30, 2019 compared with 2018 was primarily due to lower professional fees. The second quarter of 2018 included professional fees incurred for arbitration with a former customer.

First Six Months of 2019 Compared with First Six Months of 2018

Operating Loss

The $1.2 million decrease in operating loss for the first six months of 2019 compared with 2018 was primarily due to lower professional fees, partially offset by increased employee-related expenses.

NACCO Industries, Inc. Outlook

Coal Mining Outlook

In the second half and for the full year of 2019, the Company expects coal deliveries to decrease compared with the respective prior year periods. The expected reduction in coal deliveries is a result of changes in customer requirements, including the timing and duration of power plant outages, as well as comparisons to historically high delivery levels at certain of the unconsolidated operations in the prior year.

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Revenues in the second half of 2019 are expected to decrease primarily as a result of the absence of a favorable $3.0 million contractual settlement recognized at MLMC in the fourth quarter of 2018. Excluding the contractual settlement, revenues in the second half and full year of 2019 are expected to decrease modestly compared with the comparable 2018 periods due to the change in customer requirements.

Excluding the $3.0 million contractual settlement, as well as $1.8 million of favorable adjustments recognized in the fourth quarter of 2018 related to a reduction in Centennial's mine reclamation liabilities, operating profit in the second half of 2019 is expected to increase compared with the second half of 2018 primarily as a result of a reduction in operating expenses and improved results at the consolidated mining operations. These favorable changes are expected to be partially offset by reduced income at the unconsolidated Coal Mining operations as customer requirements are expected to be reduced from the prior year. The reduction in operating expenses is primarily due to a shift in the timing of costs between quarters. Full-year 2019 operating expenses are expected to be comparable to 2018.

Excluding the favorable 2018 items noted above and an additional $1.0 million favorable mine reclamation liability adjustment recognized in the first quarter of 2018, full-year 2019 operating profit is expected to decrease modestly compared with full-year 2018 as reduced income at the unconsolidated Coal Mining operations, due to fewer tons delivered, is expected to be partially offset by improved results at the consolidated mining operations.

NAMining Outlook

NAMining expects operating profit in the second half of 2019 to improve over the first half of the year, and be comparable to the second half of 2018. Operating profit for the remainder of 2019 is expected to benefit from an increase in earnings associated with new contracts, which are anticipated to be partly offset by continued spending on business development activities and increased employee-related expenses. As a result of the operating loss in the first half of 2019, NAMining expects full-year 2019 operating profit to be significantly lower than 2018.

NAMining will continue to incur expenses to support business development activities, which will contribute to an increase in operating expenses in 2019 over 2018. Over the longer term, the Company expects operating profit to improve as the business expands and is able to capture economies of scale made available through recent and ongoing investments in people, systems and infrastructure to support continued growth. NAMining entered into two new contracts during the second quarter of 2019. These new contracts, which are expected to commence in the third quarter, will have a modest impact on earnings in the second half of 2019 and will contribute moderately beginning in 2020.

Minerals Management Outlook

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas and, to a lesser extent, oil and coal, extracted primarily by third parties. The Company continued to experience a significant increase in royalty income in the first half of 2019 compared with the first half of 2018, primarily due to an increase in the number of gas wells operated by third parties to extract natural gas from the Company's Ohio Utica shale mineral reserves. In the second half of 2019, royalty income is currently expected to increase substantially over the second half of 2018 but at a significantly lower rate than realized in the first half of 2019. Importantly, however, royalty income can fluctuate favorably or unfavorably in response to a number of factors outside of the Company's control, including the number of wells being operated by third parties, fluctuations in commodity prices (primarily natural gas), fluctuations in production rates, regulatory risks, the Company's lessees' willingness and ability to incur well-development and other operating costs, and changes in the availability and continuing development of infrastructure. Oil and natural gas production is further impacted by the natural production decline that occurs during the life of a well.

Consolidated Outlook

Overall, NACCO expects a significant increase in full-year 2019 consolidated net income compared with 2018 due to the increase in net income in the first half of 2019 and an anticipated improvement in the second half of the year, including or excluding the favorable prior year items noted previously. The full-year effective income tax rate, excluding discrete items, is expected to be approximately 15% based on current estimates in the mix of earnings between entities that benefit from percentage depletion and those that do not.

Consolidated cash flow before financing activities in 2019 is expected to increase compared with 2018. Capital expenditures are expected to be approximately $28 million in 2019 compared with $20.9 million in 2018 and $15.7 million in 2017. The increase in capital expenditures in 2019 is due to spending at NAMining for dragline acquisition and relocation, as well as spending at MLMC as its mine plan includes moving into a new mine area which will require increased capital expenditures over the next several years. The increase in capital expenditures will result in an increase in depreciation in future years that will affect operating profit at the consolidated operations.

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One of the Company’s core strategies is to ensure the resiliency of its existing coal mining operations. The Company works to drive down coal production costs and maximize efficiency and operating capacity at mine locations to help customers with management fee contracts be more competitive. This benefits both customers and the Company's Coal Mining segment, as fuel cost is the major driver for power plant dispatch. Increased power plant dispatch drives increased demand for coal by the Coal Mining segment's customers.

The Company continues to evaluate opportunities to expand its core coal mining business, however opportunities are likely to be limited. Low natural gas prices and growth in renewable energy sources, such as wind and solar, could continue to unfavorably affect the amount of electricity attributable to coal-fired power plants. The political and regulatory environment is not generally receptive to development of new coal-fired power generation projects which would create opportunities to build and operate new coal mines. However, the Company does continue to seek out and pursue opportunities where it can apply its management fee business model to replace legacy operators of existing surface coal mining operations in the United States. Outright acquisitions of existing coal mines or mining companies with exposure to fluctuating coal commodity markets, or structures that would create significant leverage, are outside the Company’s area of focus.

The Company believes growth and diversification can come from pursuing opportunities to leverage skills honed in the Company’s core mining operations and utilizing the Company’s unique, service-based, management-fee business model, when possible. The Company continues to pursue non-coal mining opportunities principally through its NAMining segment. NAMining has served as a strong growth platform by focusing on the operation and maintenance of draglines for limestone producers. NAMining will continue to pursue growth in dragline operation and maintenance, while expanding the scope of work provided to customers and focusing on mining a broader range of aggregates and other minerals. The Company also continues to focus on developing its Minerals Management segment, principally related to its Ohio mineral reserves, and potentially expanding its asset base. In addition, the Company's newest business, MRNA, creates and sells stream and wetland mitigation credits and provides services to those engaged in permittee-responsible mitigation.

FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (2) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (3) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (4) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (5) weather or equipment problems that could affect deliveries to customers, (6) changes in the power industry that would affect demand for the Company's mineral reserves, (7) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives relating to hydraulic fracturing; and the ability of lessees to obtain capital or financing needed for well development operations, (8) changes in the costs to reclaim mining areas, (9) costs to pursue and develop new mining and value-added service opportunities, (10) changes to or termination of a long-term mining contract, or a customer default under a contract, (11) delays or reductions in coal or aggregates deliveries, (12) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, and (13) increased competition, including consolidation within the coal and aggregates industries.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not required to provide this information.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the

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effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective.

Changes in internal control over financial reporting: During the second quarter of 2019, there have been no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1 Legal Proceedings

None.

Item 1A Risk Factors

No material changes to the risk factors from the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers



Issuer Purchases of Equity Securities ⁽¹⁾
Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of the Publicly Announced Program	(d) Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program⁽¹⁾
Month #1 (April 1 to 30, 2019)	2,230	$	37.78	2,230	$	22,321,992
Month #2 (May 1 to 31, 2019)	—	$	—	—	$	22,321,992
Month #3 (June 1 to 30, 2019)	—	$	—	—	$	22,321,992
Total	2,230	$	37.78	2,230	$	22,321,992


(1)	In February 2018, the Company established a stock repurchase program allowing for the purchase of up to $25.0 million of the Company's Class A Common Stock outstanding through December 31, 2019. See Note 5 to the Unaudited Condensed Consolidated Financial Statements for further discussion of the Company's stock repurchase program.

Item 3 Defaults Upon Senior Securities

None.

Item 4 Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 filed with this Quarterly Report on Form 10-Q for the period ended June 30, 2019.

Item 5 Other Information

None.

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Item 6 Exhibits



Exhibit
Number*		Description of Exhibits

31(i)(1)		Certification of J.C. Butler, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
31(i)(2)		Certification of Elizabeth I. Loveman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act
32		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by J.C. Butler, Jr. and Elizabeth I. Loveman
95		Mine Safety Disclosure Exhibit
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Numbered in accordance with Item 601 of Regulation S-K.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		NACCO Industries, Inc. (Registrant)
Date:	July 31, 2019	/s/ Elizabeth I. Loveman
		Elizabeth I. Loveman
		Vice President and Controller (principal financial and accounting officer)