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TMCNet:  NACCO INDUSTRIES INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[March 04, 2014]

NACCO INDUSTRIES INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) OVERVIEW NACCO Industries, Inc. (the parent company or "NACCO") and its wholly owned subsidiaries (collectively, the "Company") operate in the following principal industries: mining, small appliances and specialty retail. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.


The North American Coal Corporation and its affiliated coal companies (collectively, "NACoal") mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc.

("HBB") is a leading designer, marketer and distributor of small electric household appliances primarily in the United States, Canada, Mexico and Latin America, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC ("KC") is a national specialty retailer of kitchenware and gourmet foods operating under the Kitchen Collection® and Le Gourmet Chef® store names in outlet and traditional malls throughout the United States.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition: Revenues are generally recognized when title transfers and risk of loss passes to the customer. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered or services are performed. Revenues at HBB are recognized when customer orders are completed and shipped. Revenues at KC are recognized at the point of sale when payment is made and customers take possession of the merchandise in stores. Reserves for discounts and returns are maintained for anticipated future claims at HBB and KC. The accounting policies used to develop these product discounts and returns include: Product discounts: The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales. If market conditions were to decline or if competition were to increase, the Company may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenues at the time the incentive is offered. If the Company's estimates of customer programs and incentives were one percent higher than the levels offered during 2013, the reserves for product discounts would increase and revenues would be reduced by $0.1 million. The Company's past results of operations have not been materially affected by a change in the estimate of product discounts and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.

Product returns: Products generally are not sold with the right of return.

However, based on the Company's historical experience, a portion of products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certain customers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this new experience. If the Company's estimate of average return rates for each type of product sold were to increase by one percent over historical levels, the reserves for product returns would increase and revenues would be reduced by less than $0.1 million. The Company's past results of operations have not been materially affected by a change in the estimate of 34 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) product returns and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.

Retirement benefit plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Pension benefits are frozen for all employees other than certain NACoal unconsolidated mines' employees. During 2013, the Company amended the Combined Plan to freeze pension benefits for all employees, including those for certain unconsolidated mines' employees and cost of living adjustments for other employees, effective as of the close of business on December 31, 2013. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans' assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.

The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.

Expected returns for pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for pension plans are based on fair market value for Non-U.S. pension plan assets.

The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans and health care plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.

Changes to the estimate of any of these factors could result in a material change to the Company's pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the 2013 assumptions are used to calculate 2014 pension expense amounts, a one percentage-point change in the expected long-term rate of return on plan assets would result in a change in pension expense for 2014 of approximately $0.6 million for the plans. A one percentage-point change in the discount rate would result in a change in pension expense for 2014 by approximately $0.1 million. A one percentage-point increase in the discount rate would have lowered the plans' projected benefit obligation as of the end of 2013 by approximately $5.9 million; while a one percentage-point decrease in the discount rate would have raised the plans' projected benefit obligation as of the end of 2013 by approximately $6.4 million.

See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's retirement benefit plans.

Self-insurance liabilities: The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers' compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changes in any of these factors could materially change the Company's estimates for these self-insurance obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate.

35 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Accounting for Asset Retirement Obligations: The Company's asset retirement obligations are principally for costs to dismantle certain mining equipment as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. Under certain federal and state regulations, the Company is required to reclaim land disturbed as a result of mining. The Company determined the amounts of these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation. The Company has capitalized an asset's retirement cost as part of the cost of the related long-lived asset. These capitalized amounts are subsequently amortized to expense using a systematic and rational method.

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. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized.

Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating income in the period of change in the estimate.

Inventory reserves: The Company writes down its inventory to the lower of cost or market, which includes an estimate for obsolescence or excess inventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs. An impairment in value of one percent of net inventories would result in additional expense of approximately $1.8 million.

Allowances for doubtful accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. An impairment in value of one percent of net accounts receivable would require an increase in the allowance for doubtful accounts and would result in additional expense of approximately $1.5 million.

Long-Lived Assets: The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of the long-lived asset exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

KC evaluates long-lived assets for impairment whenever changes in circumstances or the occurrence of certain events indicate the carrying amount may not be recoverable. The carrying amount is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. KC considered the poor results from the fall holiday-selling season and related 2013 operating loss to be an indicator of impairment. For KC's asset impairment analysis, the primary input is projected future cash flows utilizing assumptions consistent with those the Company uses in its internal planning. As a result of the fiscal year-end review of long-lived store-related assets, the Company recorded impairment charges of $1.1 million and $0.7 million in 2013 and 2012, respectively, included in depreciation expense within cost of goods sold in the Consolidated Statements of Operations. Long-lived assets at the stores consist mainly of leasehold improvements and furniture and fixtures. The fair value for leasehold improvements was determined to be zero as such assets were deemed to have no future use or economic benefit based on the Company's analysis using market participant assumptions, and therefore no expected future cash flows. The fair value for store fixtures is based on the market exit price based on historical experience. The impairment charges in 2013 were largely the result of decreased expected future operating results and the decision to close certain stores in 2014. If operating results do not improve, KC may be required to record additional long-lived asset impairment charges.

36 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) See Note 10 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's long-lived asset impairment.

Income taxes: Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns.

The Company's tax assets, liabilities, and tax expense are supported by historical earnings and losses and the Company's best estimates and assumptions of future earnings. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.

Since significant judgment is required to assess the future tax consequences of events that have been recognized in the Company's financial statements or tax returns, the ultimate resolution of these events could result in adjustments to the Company's financial statements and such adjustments could be material. The Company believes the current assumptions, judgments and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. If the actual outcome of future tax consequences differs from these estimates and assumptions, due to changes or future events, the resulting change to the provision for income taxes could have a material impact on the Company's results of operations and financial position Valuation of acquisitions: The allocation of the purchase price to the tangible assets and liabilities and identifiable intangible assets acquired requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to contingent consideration in the Reed Minerals acquisition. These estimates are based on information obtained from management of the acquired companies, future coal prices and future volume forecasts. These estimates can include, but are not limited to, the cash flows that the acquisition is expected to generate in the future and the appropriate weighted-average cost of capital. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition may have been allocated to the acquired assets and liabilities assumed differently from the current allocation. Although the Company believes the assumptions, judgments and estimates used are reasonable and appropriate, different assumptions, judgments and estimates could materially affect the value ascribed to an acquired asset and, potentially, the Company's results of operations and financial position if changes to the contingent consideration were required to be recorded.

37 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) CONSOLIDATED FINANCIAL SUMMARY Selected consolidated results of the Company were as follows: 2013 2012 2011 (1) Consolidated results: Income from continuing operations $ 44,450 $ 42,163 $ 79,470 Discontinued operations, net of tax (2) - 66,535 82,601 Net income $ 44,450 $ 108,698 $ 162,071 Basic earnings per share: Income from continuing operations $ 5.48 $ 5.04 $ 9.49 Discontinued operations (2) - 7.93 9.85 Basic earnings per share $ 5.48 $ 12.97 $ 19.34 Diluted earnings per share: Income from continuing operations $ 5.47 $ 5.02 $ 9.46 Discontinued operations (2) - 7.90 9.82 Diluted earnings per share $ 5.47 $ 12.92 $ 19.28 (1) In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica and individuals and entities affiliated with Applica's shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the Company's failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provided for, among other things, the payment of $60 million to the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011. Litigation costs related to this matter were $2.8 million in 2011.

(2) During 2012, the Company spun-off Hyster-Yale Materials Handling, Inc.

("Hyster-Yale"), a former subsidiary. The results of operations of Hyster-Yale are reflected as discontinued operations in the table above.

The following table identifies the components of change for 2013 compared with 2012 by subsidiary: Operating Income from Revenues Profit continuing operations 2012 $ 873,364 $ 67,642 $ 42,163 Increase (decrease) in 2013 NACoal 61,284 (5,778 ) (844 ) HBB 26,223 5,145 3,893 KC (net of eliminations) (28,205 ) (6,440 ) (3,693 ) NACCO and Other - 767 2,931 2013 $ 932,666 $ 61,336 $ 44,450 38--------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) THE NORTH AMERICAN COAL CORPORATION NACoal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. Coal is surface mined from NACoal's developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama. Total coal reserves approximate 2.2 billion tons with approximately 1.1 billion tons committed to customers pursuant to long-term contracts.

NACoal has two consolidated mining operations: Mississippi Lignite Mining Company ("MLMC") and Reed Minerals, Inc. ("Reed Minerals"). NACoal also provides dragline mining services for independently owned limerock quarries in Florida.

NACoal has ten wholly owned unconsolidated subsidiaries that each meet the definition of a variable interest entity and are accounted for using the equity method: The Coteau Properties Company ("Coteau") The Falkirk Mining Company ("Falkirk") The Sabine Mining Company ("Sabine") Demery Resources Company, LLC ("Demery") Caddo Creek Resources Company, LLC ("Caddo Creek") Coyote Creek Mining Company, LLC ("Coyote Creek") Camino Real Fuels, LLC ("Camino Real") Liberty Fuels Company, LLC ("Liberty") NoDak Energy Services, LLC ("NoDak") North American Coal Corporation India Private Limited ("NACC India") Coteau, Falkirk and Sabine were developed between 1974 and 1981 and operate lignite coal mines under long-term contracts with various utility customers.

Coteau, Falkirk and Sabine are capitalized primarily with debt financing, which the utility customers have arranged and guaranteed. Demery, Caddo Creek, Coyote Creek, Camino Real and Liberty (collectively with Coteau, Falkirk and Sabine, the "Unconsolidated Mines") were formed to develop, construct and operate surface mines under long-term contracts. Demery commenced delivering coal to its customer in 2012 and is expected to reach full production levels in late 2015.

Liberty commenced production in 2013 and is expected to increase production levels gradually from 0.5 to 1.0 million tons in 2014 to full production of approximately 4.7 million tons annually in 2019. Caddo Creek, Coyote Creek and Camino Real are still in development and are not expected to be in full production for several years. NoDak was formed to operate and maintain a coal processing facility. NACC India was formed to provide technical advisory services to the third-party owners of a coal mine in India.

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

39 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) FINANCIAL REVIEW Tons of coal sold by NACoal's operating mines were as follows for the years ended December 31 (in millions): 2013 2012 2011 Coteau 13.8 13.1 13.5 Falkirk 7.7 8.0 7.5 Sabine 4.3 3.8 4.2 Other 0.1 0.1 - Unconsolidated mines 25.9 25.0 25.2 MLMC 3.2 3.1 2.7 Reed Minerals 0.8 0.3 - Consolidated mines 4.0 3.4 2.7 Total tons sold 29.9 28.4 27.9 The limerock dragline mining operations mined 22.1 million, 18.8 million and 13.7 million cubic yards of limerock for the years ended December 31, 2013, 2012 and 2011, respectively.

Total coal reserves were as follows at December 31: 2013 2012 2011 (in billions of tons) Unconsolidated mines 1.0 1.0 1.0 Consolidated mines 1.2 1.2 1.3 Total coal reserves 2.2 2.2 2.3 40--------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Operating Results The results of operations for NACoal were as follows for the years ended December 31: 2013 2012 2011 Revenue - consolidated mines $ 172,532 $ 118,066 $ 73,129 Royalty and other 21,119 14,301 8,637 Revenues 193,651 132,367 81,766 Cost of sales - consolidated mines 166,881 102,224 64,255 Cost of sales - royalty and other 1,540 2,145 2,251 Total cost of sales 168,421 104,369 66,506 Gross profit 25,230 27,998 15,260 Earnings of unconsolidated mines (a) 46,429 45,244 45,485 Selling, general and administrative expenses 27,118 33,999 24,478 Goodwill impairment charge 3,973 - - Amortization of intangibles 3,668 2,802 2,065 Gain on sale of assets (561 ) (6,798 ) (1,048 ) Operating profit 37,461 43,239 35,250 Interest expense 3,105 2,909 3,048 Other (income) expense (including income from other unconsolidated affiliates) (1,032 ) (1,477 ) (1,690 ) Income from continuing operations before income 41,807 33,892 tax provision 35,388 Income tax provision 3,462 9,037 4,443 Net income $ 31,926 $ 32,770 $ 29,449 Effective income tax rate (b) 9.8 % 21.6 % 13.1 % (a) See Note 20 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. The effective income tax rate in 2012 is higher than the effective income tax rate in 2013 and 2011 primarily due to a shift in mix of taxable income towards entities with a higher effective income tax rate and a decrease in taxable income at entities eligible for percentage depletion.

2013 Compared with 2012 The following table identifies the components of change in revenues for 2013 compared with 2012: Revenues 2012 $ 132,367 Increase in 2013 from: Reed Minerals 42,451 Other consolidated mining operations 12,014 Royalty and other income 6,819 2013 $ 193,651 Revenues increased 46.3% in 2013 to $193.7 million from $132.4 million in 2012 due to the Reed Minerals acquisition in August 2012, higher revenues at the other consolidated mining operations and an increase in royalty and other income. The increase at the other consolidated mining operations was primarily the result of an increase in tons delivered at MLMC due to 41 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) an increase in customer requirements and increased reimbursable costs at the limerock dragline mining operations in 2013 compared with 2012.

The following table identifies the components of change in operating profit for 2013 compared with 2012.

Operating Profit 2012 $ 43,239 Increase (decrease) in 2013 from: Reed Minerals (14,197 ) Gain on sale of assets (6,237 ) Goodwill impairment charge (3,973 ) Royalty and other income 7,664 Other selling, general and administrative expenses 5,153 Other consolidated mining operations 3,040 Pension curtailment 1,587 Earnings of unconsolidated mines 1,185 2013 $ 37,461 Operating profit decreased to $37.5 million in 2013 from $43.2 million in 2012, primarily as a result of an operating loss at the Reed Minerals operations and a $4.0 million charge to impair the goodwill associated with the Reed Minerals acquisition as well as the absence of gains on the sale of draglines and land recorded in 2012. The operating loss at Reed Minerals was the result of lower than expected sales partially due to lower demand and lower prices for higher-quality metallurgical coal and higher mining costs. The higher mining costs are attributable to the unexpected thinning of a coal seam in an isolated area, substantial costs associated with the development of a new mining area and mining restrictions, which significantly increased hauling distances and reduced equipment and overburden removal productivity. The Company evaluated Reed Minerals during the fourth quarter of 2013 as part of its annual impairment testing cycle and determined that the goodwill associated with Reed Minerals was fully impaired. See Notes 6 and 10 for a discussion of the goodwill impairment charge. These items were partially offset by higher royalty and other income and a reduction in other selling, general and administrative expenses, primarily due to lower employee-related expenses and acquisition costs, including professional fees, recognized in 2012 for the Reed Minerals acquisition. Increased operating profit at the other consolidated mining operations, mainly due to improved results at MLMC, a curtailment gain of $1.6 million associated with freezing pension benefits and an increase in earnings of unconsolidated mines mainly due to increased volume also partially offset the decrease in operating profit.

Net income decreased to $31.9 million in 2013 from $32.8 million in 2012 primarily due to the factors affecting operating profit, partially offset by a decrease in the effective income tax rate to 9.8% in 2013 from 21.6% in 2012.

The effective income tax rate was higher in 2012 than the effective income tax rate in 2013 primarily due to a shift in mix of taxable income towards entities with a higher effective income tax rate and a decrease in taxable income at entities eligible for percentage depletion in 2012.

42 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) 2012 Compared with 2011 The following table identifies the components of change in revenues for 2012 compared with 2011: Revenues 2011 $ 81,766 Increase in 2012 from: Reed Minerals 29,272 Other consolidated mining operations 15,774 Royalty and other income 5,555 2012 $ 132,367 Revenues increased 61.9% in 2012 to $132.4 million from $81.8 million in 2011 due to the Reed Minerals acquisition, higher revenues at the consolidated mining operations and an increase in royalty and other income. The increase at the consolidated mining operations was primarily the result of an increase in tons delivered at MLMC due to improvements at a customer's power plant and increased customer requirements at the limerock dragline mining operations in 2012 compared with 2011.

The following table identifies the components of change in operating profit for 2012 compared with 2011.

Operating Profit 2011 $ 35,250 Increase (decrease) in 2012 from: Royalty and other income 5,714 Gain on sale of assets 5,749 Other consolidated mining operations 4,794 Reed Minerals 1,534 Other selling, general and administrative expenses (9,561 ) Earnings of unconsolidated mines (241 ) 2012 $ 43,239 Operating profit increased to $43.2 million in 2012 from $35.3 million in 2011, primarily as a result of higher royalty and other income, gains on the sale of draglines and land recorded in 2012, an increase in consolidated mining operating results and operating profit contributed by the newly acquired Reed Minerals. The increase in operating profit at the other consolidated mining operations is attributable to increased deliveries resulting from improvements at a customer's power plant in 2012 compared with 2011 and higher limerock dragline mining operating profit due to increased customer requirements. These increases were partially offset by higher other selling, general and administrative expenses, primarily from an increase in employee-related expenses and $2.6 million of acquisition-related costs, including professional fees.

Employee-related costs increased primarily due to incentives tied to the significant expansion of NACoal's business through the new Coyote Creek lignite sales agreement and the Reed Minerals acquisition.

Net income increased to $32.8 million in 2012 from $29.4 million in 2011, primarily due to the factors affecting operating profit partially offset by an increase in income tax expense due to a shift in the mix of taxable income to entities with higher effective income tax rates.

43 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following tables detail the change in cash flow for the years ended December 31: 2013 2012 Change Operating activities: Net income $ 31,926 $ 32,770 $ (844 ) Depreciation, depletion and amortization 16,601 10,849 5,752 Deferred income taxes (7,338 ) 12,175 (19,513 ) Gain on sale of assets (561 ) (6,798 ) 6,237 Goodwill impairment charge 3,973 - 3,973 Other (14,880 ) 6,043 (20,923 ) Working capital changes (196 ) (4,881 ) 4,685Net cash provided by operating activities 29,525 50,158 (20,633 ) Investing activities: Expenditures for property, plant and equipment (52,748 ) (37,125 ) (15,623 ) Acquisition of business - (69,287 ) 69,287 Proceeds from the sale of assets 2,432 35,946 (33,514 ) Proceeds from note receivable - 14,434 (14,434 ) Cash in escrow for investment (5,000 ) - (5,000 ) Other (869 ) (288 ) (581 ) Net cash used for investing activities (56,185 ) (56,320 ) 135 Cash flow before financing activities $ (26,660 ) $ (6,162 ) $ (20,498 ) The decrease in net cash provided by operating activities was primarily the result of the change in deferred income taxes and other operating activities partially offset by the decrease in gains on sale of assets, higher depreciation, depletion and amortization, favorable working capital changes and the non-cash goodwill impairment charge recorded in 2013. The changes in other operating activities and working capital were primarily the result of changes in intercompany taxes and accounts receivable from the unconsolidated mines, an increase in inventory primarily attributable to an increase in supplies and coal inventory at MLMC and Reed Minerals and a decrease in pension liabilities due to the Company amending its pension plan during 2013 to freeze pension benefits effective as of the close of business on December 31, 2013 and a favorable return on plan assets. The increase in depreciation, depletion and amortization was primarily due to the Reed Minerals acquisition.

Net cash used for investing activities in 2013 was comparable to 2012. Cash used for investing activities in 2013 was primarily for expenditures for property, plant and equipment, primarily for the purchase of a dragline, land and equipment at Reed Minerals, and an amount placed in escrow for a future investment, partially offset by proceeds received from the sale of assets. Cash used for investing activities in 2012 was primarily for the acquisition of Reed Minerals and expenditures for property, plant and equipment, including the purchase of two draglines, partially offset by proceeds received from the sale of land and two different draglines in 2012 and proceeds received under a long-term note related to the prior sale of a dragline.

44 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) 2013 2012 Change Financing activities: Net additions to long-term debt and revolving credit agreements $ 23,620 $ 34,733 $ (11,113 ) Cash dividends paid to NACCO - (25,624 ) 25,624 Financing fees paid (1,192 ) - (1,192 ) Other - 1 (1 )Net cash provided by financing activities $ 22,428 $ 9,110 $ 13,318 The increase in net cash provided by financing activities during 2013 compared with 2012 was primarily due to the absence of cash dividends paid to NACCO partially offset by a reduction in borrowings. Borrowings were higher in 2012 to fund the acquisition of Reed Minerals.

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 $140.0 million at December 31, 2013. At December 31, 2013, the excess availability under the NACoal Facility was $83.9 million, which reflects a reduction for outstanding letters of credit of $1.1 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 December 31, 2013, for base rate and LIBOR loans were 1.00% and 2.00%, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.35% on the unused commitment at December 31, 2013. The floating rate of interest applicable to the NACoal Facility at December 31, 2013 was 2.16% including the floating rate margin.

To reduce the exposure to changes in the market rate of interest, NACoal has entered into an interest rate swap agreement for a portion of the NACoal Facility. Terms of the interest rate swap agreement require NACoal to receive a variable interest rate and pay a fixed interest rate. NACoal has interest rate swaps with notional values totaling $100.0 million at December 31, 2013 at an average fixed interest rate of 1.4%. The weighted average effective interest rate including the interest rate swap agreement applicable to the NACoal Facility at December 31, 2013 was 3.0%. See Note 2 and Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of NACoal's 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 December 31, 2013, NACoal was in compliance with all covenants in the NACoal Facility.

During 2004 and 2005, NACoal issued unsecured notes totaling $45.0 million in a private placement (the "NACoal Notes"), which require annual principal payments of approximately $6.4 million, which began in October 2008, and will mature on October 4, 2014. These unsecured notes bear interest at a weighted-average fixed rate of 6.08%, payable semi-annually on April 4 and October 4. The NACoal Notes are redeemable at any time at the option of NACoal, in whole or in part, at an amount equal to par plus accrued and unpaid interest plus a "make-whole premium," if applicable. NACoal had $6.4 million of the private placement notes outstanding at December 31, 2013. The NACoal Notes contain certain covenants and restrictions that require, among other things, NACoal to maintain certain net worth, leverage and interest coverage ratios, and limit dividends to NACCO based upon maintaining a maximum debt to EBITDA ratio of 3.25 to 1.00. At December 31, 2013, NACoal was in compliance with all covenants in the NACoal Notes.

NACoal has a demand note payable to Coteau which bears interest based on the applicable quarterly federal short-term interest rate as announced from time to time by the Internal Revenue Service. At December 31, 2013, the balance of the note was $4.3 million and the interest rate was 0.32%.

45 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) 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 in November 2018.

Contractual Obligations, Contingent Liabilities and Commitments Following is a table which summarizes the contractual obligations of NACoal as of December 31, 2013: Payments Due by Period Contractual Obligations Total 2014 2015 2016 2017 2018 Thereafter NACoal Facility $ 140,000 $ 22,000 $ - $ - $ - $ 118,000 $ - Variable interest payments on NACoal Facility 12,842 2,965 2,549 2,549 2,549 2,230 - NACoal Notes 6,429 6,429 - - - - - Interest payments on NACoal Notes 342 342 - - - - - Other debt 4,347 - - - - - 4,347 Capital lease obligations, including principal and interest 14,468 1,732 1,732 1,732 1,732 2,022 5,518 Operating leases 35,047 11,239 8,503 6,276 3,312 2,259 3,458 Purchase and other obligations 44,206 44,206 - - - - - Unrecognized tax benefits 3,425 3,425 - - - - - Total contractual cash obligations $ 261,106 $ 92,338 $ 12,784 $10,557 $ 7,593 $ 124,511 $ 13,323 Not included in the table above, NACoal has a long-term liability of approximately $3.1 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2013. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its tax audits.

An event of default, as defined in the NACoal Facility, NACoal Notes and NACoal's lease agreements, could cause an acceleration of the payment schedule.

No such event of default has occurred or is anticipated to occur.

NACoal's variable interest payments are calculated based upon NACoal's anticipated payment schedule and the December 31, 2013 base rate and applicable margins, as defined in the NACoal Facility. A 1/8% increase in the base rate would increase NACoal's estimated total annual interest payments on the NACoal Facility by $0.7 million.

The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.

Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company's decisions to contribute above the minimum regulatory funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACoal does not expect to contribute to its pension plan in 2014. NACoal maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds and expects to pay benefits of approximately $1.1 million in 2014 and approximately $0.5 million per year from 2015 through 2023. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan. NACoal also expects to make payments related to its other postretirement plans of approximately $0.2 million per year from 2014 through 2023. Benefit payments beyond that time cannot currently be estimated.

NACoal has a long-term liability for mine closing reserves, primarily asset retirement obligations, of approximately $14.3 million and a liability for contingent consideration of $1.6 million, related to the Reed Minerals acquisition, that are not included in the table above due to the uncertainty of the timing of payments to settle these liabilities.

46 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Off Balance Sheet Arrangements NACoal has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

Capital Expenditures Following is a table which summarizes actual and planned capital expenditures (in millions): Planned Actual Actual 2014 2013 2012 NACoal $ 59.4 $ 52.7 $ 37.1 Planned expenditures for 2014 include mine equipment and development at existing mines. These expenditures are expected to be funded from internally generated funds and bank borrowings. The increase in planned and actual capital expenditures in 2014 and 2013 from 2012 levels is due to dragline purchases, dragline refurbishment, coal reserve acquisitions and other capital expenditures related to the consolidated mines.

Capital Structure NACoal's capital structure is presented below: December 31 2013 2012 Change Cash and cash equivalents $ 27 $ 4,259 $ (4,232 ) Other net tangible assets 242,486 166,265 76,221 Goodwill and coal supply agreements, net 59,685 69,752 (10,067 ) Net assets 302,198 240,276 61,922 Total debt (163,843 ) (138,021 ) (25,822 ) Total equity $ 138,355 $ 102,255 $ 36,100 Debt to total capitalization 54 % 57 % (3 )% The increase in other net tangible assets during 2013 is primarily due to an increase in property, plant and equipment, inventory and other long-term assets and a decrease in pension liabilities. The increase in property, plant and equipment was primarily due to the purchase of a dragline, mineral rights, land and equipment. The increase in other long-term assets was mainly attributable to indemnification assets related to the Reed Minerals acquisition and amounts placed in escrow for a future investment. The increase in inventory was primarily attributable to an increase in supplies and coal inventory at MLMC and Reed Minerals. The decrease in pension liabilities was due to the Company amending its pension plan during 2013 to freeze pension benefits effective as of the close of business on December 31, 2013 and a favorable return on assets.

Total debt increased $25.8 million primarily to fund the increase in property, plant and equipment, changes in intercompany taxes and accounts receivable from the unconsolidated mines and $5.0 million placed in escrow for a future investment.

Total equity increased primarily due to net income of $31.9 million and a $4.2 million decrease in accumulated other comprehensive loss in 2013.

OUTLOOK NACoal expects improved operating performance overall at its coal mining operations in 2014. At the unconsolidated mining operations, steam coal tons delivered in 2014 are expected to increase over 2013 provided customers achieve currently planned power plant operating levels. Demery commenced delivering coal to its customer in 2012 and full production levels are expected to be reached in late 2015. Liberty also commenced production of lignite coal in 2013 for Mississippi Power Company's new Kemper County Energy Facility. Production levels at Liberty are expected to increase gradually from 0.5 million to 1 million tons in 2014 to full production of approximately 4.7 million tons of lignite coal annually in 2019.

47--------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Unconsolidated mines currently in development are expected to continue to generate modest income in 2014. The three mines in development are not expected to be at full production for several years. In the first quarter of 2013, mining permits needed to commence mining operations were issued for the Caddo Creek and the Camino Real projects in Texas. Caddo Creek expects to begin making initial coal deliveries in late 2014. Camino Real expects initial deliveries in the latter half of 2015, and expects to mine approximately 3.0 million tons of coal annually when at full production. Coyote Creek is developing a lignite mine in Mercer County, North Dakota, from which it expects to deliver approximately 2.5 million tons of coal annually beginning in May 2016.

The consolidated coal mining operations are expected to improve significantly.

Tons sold at Reed Minerals are expected to increase in 2014 compared with 2013 and productivity improvements and increased mining efficiencies are expected in the second half of 2014. As part of its overall Reed Minerals improvement program, NACoal plans to temporarily idle a higher-cost Reed Minerals mining area during the last three quarters of 2014 while it files a revised mining permit. This permit will allow for a larger contiguous mining area that is expected to improve productivity and reduce costs. While this mining area is temporarily idled, NACoal will continue to supply current customers with coal mined from a nearby operation. However, these improvements at Reed Minerals are expected to be somewhat offset by reduced results at MLMC due to fewer deliveries in 2014 compared with 2013 because of two significant planned outages at the customer's power plant in 2014. Deliveries at MLMC are expected to increase over the longer term as a result of continued operational improvements at the customer's power plant. NACoal also has project opportunities for which it expects to continue to incur additional expenses in 2014. In particular, the company continues to move forward to obtain a permit for its Otter Creek reserve in North Dakota in preparation for construction of a new mine.

Limerock deliveries in 2014 are expected to be lower than 2013 as customer requirements are expected to decline.

Substantial declines in royalty and other income are also expected in 2014 from the high levels realized in 2013 and as a result, net income is expected to decrease significantly in 2014 compared with 2013.

The decrease in 2014 net income is expected to occur largely in the first half of 2014 due to significant losses at Reed Minerals in the first half of the year and substantially lower royalty and other income. Productivity improvements and increased mining efficiencies are expected to result in a slight profit at Reed Minerals in the second half of 2014 but are unlikely to offset the large operating losses expected at Reed Minerals in the first half of the year, fewer deliveries for the year at MLMC and significantly lower royalty and other income. Cash flow before financing activities in 2014 is expected to be positive as compared with the negative cash flow before financing activities in 2013.

Over the longer term, NACoal's goal is to increase earnings of its unconsolidated mines by approximately 50% over 2012 results over the following five years through the development and maturation of its new mines and normal escalation of contractual compensation at its existing mines. Also, NACoal has a goal of at least doubling the earnings contribution from its consolidated mining operations over the following five years from 2012 levels due to benefits from anticipated continued operational improvements at MLMC's customer's power plant and from the company's execution of its long-term plan at the Reed Minerals operations. The company views its acquisition of Reed Minerals as a metallurgical coal strategic initiative which includes significantly increased volume and profitability for the company over the long term.

NACoal also expects to continue its efforts to develop new mining projects. The company is actively pursuing domestic opportunities for new or expanded coal mining projects, which include prospects for power generation, coal-to-liquids, coal-to-chemicals, coal gasification, coal drying and other clean coal technologies. NACoal also continues to pursue additional non-coal mining opportunities, principally in aggregates, and international value-added mining services projects, particularly in India.

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 small electric appliances to retailers and consumers increase significantly for the fall holiday-selling season.

FINANCIAL REVIEW 48 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Operating Results The results of operations for HBB were as follows for the years ended December 31: 2013 2012 2011 Revenues $ 547,790 $ 521,567 $ 493,047 Operating profit $ 40,960 $ 35,815 $ 33,823 Interest expense $ 1,279 $ 2,635 $ 5,231 Other expense $ 461 $ 344 $ 846 Net income $ 25,093 $ 21,200 $ 18,363Effective income tax rate 36.0 % 35.4 % 33.8 % 2013 Compared with 2012 The following table identifies the components of change in revenues for 2013 compared with 2012: Revenues 2012 $ 521,567 Increase (decrease) in 2013 from: Unit volume and product mix 30,952 Average sales price (3,920 ) Foreign currency (809 ) 2013 $ 547,790 Revenues increased 5.0% to $547.8 million in 2013 from $521.6 million in 2012 primarily due to an increase in sales of new products with higher price points, mainly in the U.S. consumer market and improved sales of commercial products, partially offset by decreases in the international consumer markets. The increase in revenues was also partially offset by lower average selling prices of products to retail customers due to an increase in promotions and unfavorable foreign currency movements in 2013 compared with 2012 as the Canadian dollar weakened against the U.S. dollar, partially offset by a strengthening of the Mexican peso.

The following table identifies the components of change in operating profit for 2013 compared with 2012: Operating Profit 2012 $ 35,815 Increase (decrease) in 2013 from: Gross profit 13,082 Environmental expense - Southern Pines and Mt. Airy 1,615 Other selling, general and administrative expenses (7,352 ) Environmental expense - Picton (2,335 ) Foreign currency 135 2013 $ 40,960 HBB's operating profit increased to $41.0 million in 2013 from $35.8 million in 2012 primarily as a result of higher gross profit and a $1.6 million decrease in HBB's environmental expense related to a third party's commitment to share in environmental liabilities at HBB's Southern Pines and Mt. Airy locations. The increase in gross profit was primarily attributable to an increase in sales of new products with higher price points in 2013 compared with 2012, partially offset by lower prices on comparable products sold. An increase in other selling, general and administrative expenses, mainly due to higher employee-related and advertising costs, and a $2.3 million charge to establish a liability for environmental investigation and remediation activities at HBB's Picton, Ontario facility also partially offset the improvement in operating profit.

49 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Net income increased to $25.1 million in 2013 compared with $21.2 million in 2012 primarily due to the factors affecting operating profit and lower interest expense as a result of lower levels of borrowings during 2013 compared with 2012.

2012 Compared with 2011 The following table identifies the components of change in revenues for 2012 compared with 2011: Revenues 2011 $ 493,047 Increase (decrease) in 2012 from: Unit volume and product mix 28,432 Average sales price 2,180 Foreign currency (2,092 ) 2012 $ 521,567 Revenues increased 5.8% to $521.6 million in 2012 from $493.0 million in 2011 primarily due to an increase in sales volumes of higher-priced products in the U.S. consumer retail market, mainly to HBB's mass-market retail customers, and higher prices on comparable products sold. The increase in revenues was partially offset by unfavorable foreign currency movements in 2012 compared with 2011.

The following table identifies the components of change in operating profit for 2012 compared with 2011: Operating Profit 2011 $ 33,823 Increase (decrease) in 2012 from: Gross profit 6,985 Other selling, general and administrative expenses (3,295 ) Foreign currency (1,698 ) 2012 $ 35,815 HBB's operating profit increased to $35.8 million in 2012 compared with $33.8 million in 2011. Operating profit increased primarily as a result of higher gross profit caused by a shift in sales mix to higher-margin and higher-priced products partially offset by increased product and transportation costs. In addition, operating profit was favorably affected by the absence of a $1.3 million charge during 2011 for the write-off of a capital lease asset no longer being leased and $0.9 million of costs related to moving the HBB distribution center into a larger facility during 2011. The increase in operating profit was partially offset by an increase in other selling, general and administrative expenses, mainly due to higher employee-related expenses, and unfavorable foreign currency movements.

Net income increased to $21.2 million in 2012 compared with $18.4 million in 2011. The increase was mainly attributable to the increase in operating profit in 2012, combined with lower interest expense primarily due to lower levels of borrowings and lower average interest rates during 2012 compared with 2011.

50 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following tables detail the change in cash flow for the years ended December 31: 2013 2012 Change Operating activities: Net income $ 25,093 $ 21,200 $ 3,893 Depreciation and amortization 3,475 3,113 362 Other 332 1,926 (1,594 ) Working capital changes 11,854 1,151 10,703Net cash provided by operating activities 40,754 27,390 13,364 Investing activities: Expenditures for property, plant and equipment (2,313 ) (3,223 ) 910 Other 35 8 27 Net cash used for investing activities (2,278 ) (3,215 ) 937 Cash flow before financing activities $ 38,476 $ 24,175 $ 14,301 Net cash provided by operating activities increased $13.4 million in 2013 compared with 2012 primarily due to the change in working capital and the increase in net income partially offset by the change in other operating activities. The change in working capital in 2013 is mainly the result of an increase in accounts payable and payroll-related accruals, partially offset by an increase in inventory and accounts receivable. The increase in accounts payable was primarily due to the increase in inventory and a shift in payment terms with certain suppliers. The increase in inventory was driven primarily by higher sales forecasts and higher average inventory costs as a result of a shift in mix to higher-priced products, while the increase in accounts receivable was driven by higher sales. The decrease in other operating activities was mainly due to a change in HBB's pension liability.

2013 2012 Change Financing activities: Net reductions of long-term debt and revolving credit agreements $ (21,229 ) $ (14,519 ) $ (6,710 ) Cash dividends paid to NACCO (20,000 ) (15,000 ) (5,000 ) Financing fees paid - (1,212 ) 1,212 Net cash used for financing activities $ (41,229 ) $ (30,731 ) $ (10,498 ) The increase in net cash used for financing activities was primarily the result of an increase in payments made on the HBB revolver and cash dividends paid to NACCO.

Financing Activities HBB has a $115.0 million senior secured floating-rate revolving credit facility (the "HBB Facility") that expires in July 2017. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $228.9 million as of December 31, 2013.

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact 51 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary.

Borrowings bear interest at a floating rate, which can be a base rate, LIBOR or bankers acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2013, for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50%, respectively.

The applicable margins, effective December 31, 2013, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.00% and 1.50%, respectively. The HBB Facility also requires a fee of 0.375% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability and average usage, respectively. The floating rate of interest applicable to the HBB Facility at December 31, 2013 was 3.18% including the floating rate margin.

At December 31, 2013, the borrowing base under the HBB Facility was $111.6 million and borrowings outstanding under the HBB Facility were $18.4 million. At December 31, 2013, the excess availability under the HBB Facility was $93.1 million.

To reduce the exposure to changes in the market rate of interest, HBB has entered into interest rate swap agreements for a portion of the HBB Facility.

Terms of the interest rate swap agreements require HBB to receive a variable interest rate and pay a fixed interest rate. HBB has delayed start interest rate swaps with notional values totaling $20.0 million at December 31, 2013 at an average fixed interest rate of 1.4%. See Note 2 and Note 9 to the Consolidated Financial Statements in this Form10-K for further discussion of HBB's interest rate swap agreements.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are limited to the greater of $20.0 million and excess cash flow from the most recently ended fiscal year in each of the two twelve-month periods following the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of not less than $25.0 million and maintains a minimum fixed charge coverage ratio of at least 1.0 to 1.0, as defined in the HBB Facility; and in such amounts as determined by HBB subsequent to the second anniversary of the closing date of the HBB Facility, so long as HBB has excess availability under the HBB Facility of not less than $25.0 million. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility.

At December 31, 2013, HBB was in compliance with all covenants in the HBB Facility.

HBB believes funds available from cash on hand at the Company, the HBB 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 HBB Facility in July 2017.

Contractual Obligations, Contingent Liabilities and Commitments Following is a table which summarizes the contractual obligations of HBB as of December 31, 2013: Payments Due by Period Contractual Obligations Total 2014 2015 2016 2017 2018 Thereafter HBB Facility $ 18,447 $ - $ - $ - $ 18,447 $ - $ - Variable interest payments on HBB Facility 3,527 707 880 1,172 768 - - Purchase and other obligations 187,350 180,635 1,778 2,218 2,719 - - Operating leases 26,475 4,114 4,235 3,704 2,983 3,043 8,396 Unrecognized tax benefits 1,272 1,272 - - - - - Total contractual cash obligations $ 237,071 $ 186,728 $ 6,893 $ 7,094 $ 24,917 $ 3,043 $ 8,396 Not included in the table above, HBB has a long-term liability of approximately $1.5 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2013. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.

An event of default, as defined in the HBB Facility and in HBB's operating agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.

52 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.

Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company's decisions to contribute above the minimum regulatory funding requirements. As a result, pension funding has not been included in the table above. HBB does not expect to contribute to its pension plans in 2014. Pension benefit payments are made from assets of the pension plans.

Off Balance Sheet Arrangements HBB has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

Capital Expenditures Following is a table which summarizes actual and planned capital expenditures (in millions): Planned Actual Actual 2014 2013 2012 HBB $ 6.7 $ 2.3 $ 3.2 Planned expenditures for 2014 are primarily for tooling for new products and improvements to HBB's information technology infrastructure. These expenditures are expected to be funded from internally generated funds and bank borrowings.

Capital Structure HBB's capital structure is presented below: December 31 2013 2012 Change Cash and cash equivalents $ 11 $ 2,784 $ (2,773 ) Other net tangible assets 70,700 80,003 (9,303 ) Net assets 70,711 82,787 (12,076 ) Total debt (18,447 ) (39,676 ) 21,229 Total equity $ 52,264 $ 43,111 $ 9,153 Debt to total capitalization 26 % 48 % (22 )% Other net tangible assets decreased $9.3 million from December 31, 2012 primarily due to an increase in accounts payable as a result of a shift in payment terms with certain suppliers, an increase in other current liabilities from increased payroll-related accruals and a change in deferred income taxes, partially offset by an increase in inventory and accounts receivable and a change in HBB's pension liability. The increase in inventory was driven by higher sales forecasts and higher average inventory costs due to a shift in mix to higher-priced products while the increase in accounts receivable was driven by higher sales in 2013 compared with 2012.

Total debt decreased $21.2 million due to payments made during 2013.

Total equity increased $9.2 million primarily attributable to HBB's net income of $25.1 million in 2013 and a $4.1 decrease in accumulated other comprehensive loss, mainly due to changes in cash flow hedging and pension, partially offset by $20.0 million of dividends paid to NACCO during 2013.

OUTLOOK HBB's target consumer, the middle-market mass consumer, continues to struggle with financial and economic concerns. As a result, sales volumes in the middle-market portion of the U.S. small kitchen appliance market in which HBB participates are 53 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) projected to grow only moderately in 2014. International and commercial product markets in which HBB participates are also anticipated to grow in 2014 compared with 2013.

HBB expects sales volumes to grow more favorably than the market due to improved placements and sales volumes in 2014 compared with 2013. HBB continues to focus on strengthening its North American consumer market position through product innovation, promotions, increased placements and branding programs, together with appropriate levels of advertising for the company's highly successful and innovative product lines. HBB expects the FlexBrewTM coffee maker, launched in late 2012, and the Hamilton Beach® Breakfast Sandwich Maker, launched in early 2013, to continue to gain market position. The company is continuing to introduce innovative products and upgrades to certain products in several small appliance categories. These products, as well as other new product introductions in the pipeline for 2014, are expected to affect both revenues and operating profit positively. As a result of these new products and execution of the company's strategic initiatives, both domestically and internationally, HBB expects an increase in revenues in 2014 compared with 2013 at more than the 2014 market forecast rate of increase.

Overall, HBB expects full-year 2014 net income to be comparable to 2013. The anticipated increase in sales volumes attributable to the continued implementation and execution of HBB's strategic initiatives is expected to be substantially offset by the costs to implement these initiatives and by increased advertising and promotional costs. Product and transportation costs, as well as the negative effects of foreign currency fluctuations, are currently expected to increase modestly in 2014 compared with 2013. HBB continues to monitor both currency effects and commodity costs closely and intends to adjust product prices and product placements, as appropriate, if these costs increase more than anticipated. HBB expects cash flow before financing activities in 2014 to be substantial but down significantly from 2013.

Longer term, HBB will work to take advantage of the potential to improve return on sales through economies of scale derived from market growth and a focus on its five strategic volume growth initiatives: (1) enhancing its placements in the North America consumer business through consumer-driven innovative products and strong sales and marketing support, (2) enhancing internet sales by providing best-in-class retailer support and increased consumer content and engagement, (3) participating in the "only-the-best" market with a strong brand and broad product line, (4) expanding internationally in the emerging Asian and Latin American markets by increasing product offerings and expanding its distribution channels and sales and marketing capabilities and (5) achieving global Commercial market leadership through a commitment to an enhanced global product line for chains and distributors serving the global food service and hospitality markets. During 2013, HBB made strides in the execution of its strategic initiatives and expects to continue to do so in 2014.

THE KITCHEN COLLECTION, LLC KC's business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to consumers increase significantly for the fall holiday-selling season.

FINANCIAL REVIEW Operating Results The results of operations for KC were as follows for the years ended December 31: 2013 2012 2011 Revenues $ 196,033 $ 224,695 $ 221,173 Operating profit (loss) $ (10,903 ) $ (4,512 ) $ 2,508 Interest expense $ 390 $ 479 $ 489 Other expense $ 70 $ 86 $ 85Net income (loss) $ (6,884 ) $ (3,087 ) $ 1,105 Effective income tax rate 39.4 % 39.2 % 42.9 % 54 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) 2013 Compared with 2012 The following table identifies the components of change in revenues for 2013 compared with 2012: Revenues 2012 $ 224,695 Increase (decrease) in 2013 from: Closed stores (25,865 ) KC comparable store sales (7,069 ) LGC comparable store sales (3,018 ) New store sales 7,054 Other 236 2013 $ 196,033 Revenues decreased 12.8% to $196.0 million in 2013 compared with $224.7 million in 2012, primarily as a result of closing unprofitable KC and LGC stores and a decline in comparable store sales at both KC and LGC. The decrease in comparable store sales was mainly due to fewer customer visits and a reduction in store transactions at both store formats, partially offset by a higher average sale transaction value in 2013 compared with 2012. These decreases were partially offset by sales at newly opened KC stores.

At December 31, 2013, KC operated 272 stores compared with 261 stores at December 31, 2012. LGC operated 32 stores at December 31, 2013 compared with 51 stores at December 31, 2012. The Kitchen Collection® store count does not include 5 stores and 34 stores at December 31, 2013 and December 31, 2012, respectively, that were only open for the holiday-selling season.

The following table identifies the components of change in operating loss for 2013 compared with 2012: Operating loss 2012 $ (4,512 ) Increase (decrease) in 2013 from: KC comparable stores (5,198 ) KC new stores (1,095 ) Asset impairment charges (421 ) Severance charges (355 ) Lower of cost or market charge (341 ) LGC comparable stores (203 ) Selling, general and administrative expenses and other 681 Closed stores 541 2013 $ (10,903 ) KC recorded an operating loss of $10.9 million in 2013 compared with an operating loss of $4.5 million in 2012. The operating loss in 2013 was primarily the result of reduced sales and a shift in sales mix to lower margin products at KC and LGC comparable stores and KC new stores. In addition, KC recorded impairment charges for leasehold improvements and furniture and fixtures at certain stores of $1.1 million in 2013 compared with $0.7 million in 2012, an increase of $0.4 million in severance charges and a $0.3 million lower of cost or market inventory charge. These items were partially offset by favorable selling, general and administrative expenses primarily due to reductions in employee-related and supplies expense.

KC reported a net loss of $6.9 million in 2013 compared with a net loss of $3.1 million in 2012 primarily due to the factors affecting the change in operating loss.

55 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) 2012 Compared with 2011 The following table identifies the components of change in revenues for 2012 compared with 2011: Revenues 2011 $ 221,173 Increase (decrease) in 2012 from: New store sales 16,966 KC comparable store sales 430 Closed stores (12,245 ) LGC comparable store sales (1,458 ) Other (171 ) 2012 $ 224,695 Revenues increased to $224.7 million in 2012 compared with $221.2 million in 2011, primarily as a result of opening new KC stores during the past twelve months. The increase in revenue was partially offset by the effect of closing unprofitable LGC and KC stores since December 31, 2011 and a decrease in comparable store sales at LGC. The decrease in comparable store sales at LGC was mainly attributable to fewer customer visits and a decline in store transactions, partially offset by a higher average sales transaction value.

At December 31, 2012, KC operated 261 stores compared with 276 stores at December 31, 2011. LGC operated 51 stores at December 31, 2012 compared with 61 stores at December 31, 2011. The Kitchen Collection® store count at December 31, 2012 does not include 34 stores that were only open for the holiday-selling season. The company did not utilize the seasonal store format in 2011.

The following table identifies the components of change in operating profit for 2012 compared with 2011: Operating Profit (Loss) 2011 $ 2,508 Increase (decrease) in 2012 from: KC comparable stores (2,321 ) Selling, general and administrative expenses (2,127 ) Closed stores (1,430 ) LGC comparable stores (1,093 ) New stores (112 ) Leasehold impairment charge (661 ) Warehouse combination costs 724 2012 $ (4,512 ) KC recorded an operating loss of $4.5 million in 2012 compared with operating profit of $2.5 million in 2011. The operating loss in 2012 was primarily due to lower comparable store results as a result of a shift in sales to lower margin products at both KC and LGC comparable stores and higher employee-related costs at both KC and LGC stores. Higher selling, general and administrative expenses were primarily due to an increase in employee-related expenses, professional fees and real estate taxes. Unfavorable margins at closed stores from the liquidation of inventory contributed to the 2012 operating loss. In addition, KC recorded an impairment charge for leasehold improvements and furniture and fixtures at certain stores in 2012. The operating loss was favorably affected by the absence of costs incurred in 2011 for the relocation of KC's two distribution centers into one larger facility.

KC reported a net loss of $3.1 million in 2012 compared with net income of $1.1 million in 2011 primarily due to the factors affecting the change in operating profit.

56 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following tables detail the change in cash flow for the years ended December 31: 2013 2012 Change Operating activities: Net loss $ (6,884 ) $ (3,087 ) $ (3,797 ) Depreciation 4,162 3,611 551 Other (992 ) (312 ) (680 ) Working capital changes (6,357 ) 3,542 (9,899 ) Net cash provided by (used for) operating activities (10,071 ) 3,754 (13,825 ) Investing activities: Expenditures for property, plant and equipment (2,150 ) (3,872 ) 1,722 Other 37 20 17 Net cash used for investing activities (2,113 ) (3,852 ) 1,739 Cash flow before financing activities $ (12,184 ) $ (98 ) $ (12,086 ) Net cash provided by (used for) operating activities decreased $13.8 million during 2013 compared with 2012 primarily due to the change in working capital and the increase in the net loss in 2013 compared with 2012. The change in working capital was primarily the result of a larger decrease in accounts payable as a result of the lower levels of inventory in 2013 and a smaller decrease in inventory in 2013 compared with 2012 primarily due to KC closing less stores in 2013 than in 2012. The increase in depreciation is primarily due to the inclusion of impairment charges for leasehold improvements and furniture and fixtures at certain stores of $1.1 million in 2013 compared with $0.7 million in 2012.

Expenditures for property, plant and equipment decreased primarily due to the reduction in the number of stores.

2013 2012 Change Financing activities: Net additions (reductions) of long-term debt and revolving credit agreements $ 1,460 $ (21 ) $ 1,481 Financing fees paid (17 ) (221 ) 204 Net cash provided by (used for) financing activities $ 1,443 $ (242 ) $ 1,685 The $1.7 million change in net cash provided by (used for) financing activities during 2013 compared with 2012 was primarily due to borrowings outstanding under the KC revolving credit agreement at December 31, 2013.

Financing Activities KC has a $30.0 million secured revolving line of credit that expires in August 2017 (the "KC Facility"). The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was $63.4 million as of December 31, 2013.

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00% as of December 31, 2013. The KC Facility also requires a fee of 0.375% per annum on the unused commitment. The floating rate of interest applicable to the KC Facility at December 31, 2013 was 4.25% including the floating rate margin.

57 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) At December 31, 2013, the borrowing base under the KC Facility was $27.0 million and borrowings outstanding under the KC Facility were $1.5 million. At December 31, 2013, the excess availability under the KC Facility was $25.5 million.

The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve-month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $15.0 million after giving effect to such payment. At December 31, 2013, KC was in compliance with all covenants in the KC Facility.

KC believes funds available from cash on hand at KC and the Company, the KC 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 KC Facility expires in August 2017.

Contractual Obligations, Contingent Liabilities and Commitments Following is a table which summarizes the contractual obligations of KC as of December 31, 2013: Payments Due by Period Contractual Obligations Total 2014 2015 2016 2017 2018 Thereafter KC Facility $ 1,460 $ 1,460 $ - $ - $ - $ - $ - Variable interest payments on KC Facility 54 54 - - - - - Purchase and other obligations 33,775 33,775 - - - - - Operating leases 79,902 19,958 15,776 12,789 9,354 6,550 15,475 Total contractual cash obligations $ 115,191 $ 55,247 $ 15,776 $ 12,789 $ 9,354 $ 6,550 $ 15,475 An event of default, as defined in the KC Facility and KC's operating lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.

KC's interest payments are calculated based upon KC's anticipated payment schedule and the December 31, 2013 LIBOR rate and applicable margins, as defined in the KC Facility.

The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.

Off Balance Sheet Arrangements KC has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

Capital Expenditures Following is a table which summarizes actual and planned capital expenditures: Planned Actual Actual 2014 2013 2012 KC $ 1,579 $ 2,150 $ 3,872 Planned expenditures in 2014 for property, plant and equipment are primarily for improvements to KC's information technology infrastructure and store fixtures and equipment at new or existing stores. These expenditures are expected to be funded from internally generated funds and bank borrowings.

58 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Capital Structure KC's capital structure is presented below.

December 31 2013 2012 Change Cash and cash equivalents $ 781 $ 11,522 $ (10,741 ) Other net tangible assets 37,451 32,134 5,317 Net assets 38,232 43,656 (5,424 ) Total debt (1,460 ) - (1,460 ) Total equity $ 36,772 $ 43,656 $ (6,884 )Debt to total capitalization (a) (a) (a) (a)Debt to total capitalization is not meaningful.

Other net tangible assets increased $5.3 million from December 31, 2012 primarily due to a decrease in accounts payable and inventory. The decrease in accounts payable is mainly the result of a reduction in inventory purchases due to lower than expected sales during the 2013 holiday-selling season and the decrease in inventory is from the decrease in the number of stores at December 31, 2013 compared with December 31, 2012.

OUTLOOK Consumer traffic to all mall locations, and particularly outlet malls, continued to decline in 2013, especially in the fourth quarter. Prospects for 2014 are uncertain. Fewer households were established in 2013, and this trend is expected to continue in 2014 because the middle-market consumer remains under pressure as a result of financial and economic concerns. These concerns are expected to continue to dampen consumer sentiment and limit consumer spending levels for KC's target customer in 2014. In this context, KC expects to close over 50 stores in 2014, with the majority closing in the first quarter, as part of a program to close underperforming stores and realign the business around core stores which perform with acceptable profitability. KC plans to maintain a lower number of stores in 2014 and, as a result, expects 2014 revenues to decrease compared with 2013.

The net effect of closing stores early in 2014 and the anticipated opening of a small number of new stores during the second half of 2014 is expected to contribute to significantly improved operating results with the objective of approaching break-even operating profit in 2014 compared with the significant loss in 2013. As part of KC's program to realign its business, the company plans not only to close unprofitable stores, but also to reduce expenses through a number of cost reduction programs at its headquarters, distribution center and remaining core stores and by terminating its medical benefit plan. This program is expected to be largely implemented in the first half of 2014 and generate significant improvements during the second half of 2014. In addition, KC is focused on driving consumer interest back toward higher-margin products.

Longer term, KC plans to focus on comparable store sales growth around a solid core store portfolio. KC expects to accomplish this by enhancing sales volume and profitability through continued refinement of its formats and ongoing review of specific product offerings, merchandise mix, store displays and appearance, while improving inventory efficiency and store inventory controls. A particular focus will be on increasing sales of higher-margin products. The company will also continue to evaluate and, as lease contracts permit, close or restructure leases for underperforming and loss-generating stores. In the near term, KC expects to add stores cautiously and focus its growth on its core Kitchen Collection® stores, with new stores expected to be located in sound positions in strong outlet malls. KC also expects to focus on growth opportunities in e-commerce.

NACCO AND OTHER NACCO and Other includes the parent company operations and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of NACCO. Although Bellaire's operations are immaterial, it has long-term liabilities related to closed mines, primarily from former Eastern U.S. underground coal mining activities.

FINANCIAL REVIEW Operating Results The results of operations at NACCO and Other were as follows for the years ended December 31: 2013 2012 2011 Revenues $ - $ - $ - Operating loss $ (6,233 ) $ (7,000 ) $ (7,463 ) Other (income) expense, including closed mine obligations and Applica settlement and litigations costs $ 1,547 $ 4,583 $ (56,159 ) Net income (loss) $ (5,718 ) $ (7,681 ) $ 30,589 2013 Compared with 2012 NACCO and Other recognized an operating loss of $6.2 million in 2013 compared with an operating loss of $7.0 million in 2012. The decrease in the operating loss was primarily due to a decrease in employee-related expenses partially offset by a reduction in management fees charged to the subsidiaries', both as a result of the spin-off of Hyster-Yale.

NACCO and Other recognized a decrease in other (income) expense primarily due to revisions of estimated cash flows for the Bellaire asset retirement obligation.

NACCO and Other recognized a net loss of $5.7 million in 2013 compared with a net loss of $7.7 million in 2012 primarily due to the factors affecting the operating loss and other (income) expense.

2012 Compared with 2011 NACCO and Other recognized an operating loss of $7.0 million in 2012 compared with $7.5 million in 2011. The change was primarily due to lower professional fees, partially offset by an increase in employee-related costs in 2012 compared with 2011.

Other (income) expense in 2011 includes the settlement of the Applica litigation, as discussed in the Applica Transaction section below.

NACCO and Other recognized a net loss of $7.7 million in 2012 compared with net income of $30.6 million in 2011 primarily due to the items affecting other (income) expense.

Hyster-Yale Spin-Off On September 28, 2012, the Company completed the spin-off of Hyster-Yale, a former subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock or Class B common stock they owned. As a result of the spin-off, the financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for all periods presented through the date of the spin-off in the Consolidated Financial Statements.

In connection with the spin-off of Hyster-Yale, NACCO and Other recognized expenses of $3.4 million, $3.0 million after-tax, in 2012 which are reflected as discontinued operations in the Consolidated Statements of Operations.

59 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Share Repurchase Program On November 8, 2011, the Company announced that the Company's Board of Directors approved the repurchase of up to $50 million of the Company's outstanding Class A common stock (the "2011 Stock Repurchase Program"). The original authorization for the 2011 Stock Repurchase Program expired on December 31, 2012; however, in November 2012 the Company's Board of Directors approved an extension of the 2011 Stock Repurchase Program through December 31, 2013. In total, the Company repurchased $35.6 million of Class A common stock under the 2011 Stock Repurchase Program.

On November 12, 2013, the Company's Board of Directors terminated the 2011 Stock Repurchase Program and approved a new stock repurchase program (the "2013 Stock Repurchase Program") providing for the purchase of up to $60 million of the Company's outstanding Class A Common Stock through December 31, 2015. The timing and amount of any repurchases under the 2013 Stock Repurchase Program will be determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company's Class A common stock. The 2013 Stock Repurchase Program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2013 Stock Repurchase Program may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be prevented from doing so. As of December 31, 2013, the Company repurchased $0.9 million of Class A common stock under the 2013 Stock Repurchase Program.

Applica Transaction In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica Incorporated ("Applica") and individuals and entities affiliated with Applica's shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provided for, among other things, the payment of $60 million to the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011. Litigation costs related to the failed transaction with Applica were $2.8 million in 2011.

Management Fees The management fees charged to operating subsidiaries represent an allocation of corporate overhead of the parent company. Management fees are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary.

The Company believes the allocation method is consistently applied and reasonable.

Following are the parent company management fees included in each subsidiary's selling, general and administrative expenses for the years ended December 31: 2013 2012 2011 NACoal $ 3,136 $ 4,135 $ 3,766 HBB $ 3,424 $ 2,491 $ 3,314 KC $ 250 $ 250 $ 125 LIQUIDITY AND CAPITAL RESOURCES 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), advances and management fees from its subsidiaries are the primary sources of cash for NACCO.

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

60 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Contractual Obligations, Contingent Liabilities and Commitments Following is a table which summarizes the contractual obligations of NACCO and Other as of December 31, 2013: Contractual Obligations Total 2014 2015 2016 2017 2018 Thereafter Operating leases $ 2,660 $ 266 $ 266 $ 266 $ 266 $ 266 $ 1,330 Income taxes payable 7,860 7,860 - - - - -Purchase and other obligations 6,380 6,380 - - - - - Total contractual cash obligations $ 16,900 $ 14,506 $ 266 $ 266 $ 266 $ 266 $ 1,330 Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company's funding decisions to contribute any excess above the minimum legislative funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACCO does not expect to contribute to its pension plan during 2014. NACCO and Other maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds. Annual benefit payments are expected to be less than $0.1 million per year over the next ten years. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan.

The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.

NACCO and Other has a long-term liability for mine closing reserves, primarily asset retirement obligations, of $19.7 million that is not included in the table above due to the uncertainty of the timing of payments to settle these liabilities.

Off Balance Sheet Arrangements NACCO has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

61 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) Capital Structure NACCO's consolidated capital structure is presented below: December 31 2013 2012 Change Cash and cash equivalents $ 95,390 $ 139,855 $ (44,465 ) Other net tangible assets 341,230 264,449 76,781 Goodwill and coal supply agreements, net 59,685 69,752 (10,067 ) Net assets 496,305 474,056 22,249 Total debt (183,750 ) (177,697 ) (6,053 ) Closed mine obligations, net of tax (14,775 ) (15,028 ) 253 Total equity $ 297,780 $ 281,331 $ 16,449 Debt to total capitalization - continuing operations 38 % 39 % (1 )% RECENTLY ISSUED ACCOUNTING STANDARDS In February 2013, the FASB issued authoritative guidance on the presentation of comprehensive income, which was effective for the Company on January 1, 2013.

The guidance requires an entity to (i) present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S.

GAAP to be reclassified to net income in its entirety in the same reporting period; and (ii) cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S.

GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense. The Company adopted this guidance during the first quarter of 2013. Because this guidance is related to presentation only, the adoption did not have any effect on the Company's financial position, results of operations or cash flows.

EFFECTS OF FOREIGN CURRENCY HBB operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The effects of foreign currency on operating results at HBB is discussed above. The Company's use of foreign currency derivative contracts is discussed in Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of this Form 10-K.

ENVIRONMENTAL MATTERS The Company's previous manufacturing operations, like those of other companies engaged in similar businesses, involved the use, disposal and cleanup of substances regulated under environmental protection laws. The Company's NACoal and Bellaire subsidiaries are affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the United States Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition, NACoal and Bellaire closely monitor proposed legislation concerning SMCRA, CAA, reauthorization of the Resource Conservation and Recovery Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act and other regulatory actions.

Compliance with these increasingly stringent standards could result in higher expenditures for both capital improvements and operating costs. The Company's policies stress environmental responsibility and compliance with these regulations. Based on current information, management does not expect compliance with these regulations to have a material adverse effect on the Company's financial condition or results of operations. See Item 1 in Part I of this Form 10-K for further discussion of these matters.

62 --------------------------------------------------------------------------------Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data) FORWARD-LOOKING STATEMENTS The statements contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere throughout this Annual Report on Form 10-K 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. Such risks and uncertainties with respect to each subsidiary's operations include, without limitation: NACoal: (1) the successful integration of the Reed Minerals acquisition, (2) changes in the demand for and market prices of metallurgical coal produced at the Reed Minerals operations, (3) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (4) changes in costs related to geological conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (5) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (6) weather conditions, extended power plant outages or other events that would change the level of customers' coal or limerock requirements, which would have an adverse effect on results of operations, (7) weather or equipment problems that could affect deliveries to customers, (8) changes in the power industry that would affect demand for NACoal's reserves, (9) changes in the costs to reclaim current NACoal mining areas, (10) costs to pursue and develop new mining opportunities, (11) legal challenges related to Mississippi Power's Kemper County Energy Facility in Mississippi, (12) changes or termination of a long-term mining contract, or a customer default under a contract and (13) increased competition, including consolidation within the industry.

HBB: (1) changes in the sales prices, product mix or levels of consumer purchases of small electric appliances, (2) changes in consumer retail and credit markets, (3) bankruptcy of or loss of major retail customers or suppliers, (4) changes in costs, including transportation costs, of sourced products, (5) delays in delivery of sourced products, (6) changes in or unavailability of quality or cost effective suppliers, (7) exchange rate fluctuations, changes in the foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which HBB buys, operates and/or sells products, (8) product liability, regulatory actions or other litigation, warranty claims or returns of products, (9) customer acceptance of, changes in costs of, or delays in the development of new products, (10) increased competition, including consolidation within the industry and (11) changes mandated by federal, state and other regulation, including health, safety or environmental legislation.

KC: (1) changes in gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the number of customers visiting Kitchen Collection® and Le Gourmet Chef® stores, (2) changes in the sales prices, product mix or levels of consumer purchases of kitchenware, small electric appliances and gourmet foods, (3) changes in costs, including transportation costs, of inventory, (4) delays in delivery or the unavailability of inventory, (5) customer acceptance of new products, (6) the anticipated impact of the opening of new stores, the ability to renegotiate existing leases and effectively and efficiently close under-performing stores, (7) increased competition and (8) the impact of tax penalties under health care reform legislation beginning in 2015.

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