NACCO Industries
Annual Report 2018

Plain-text annual report

NACCO INDUSTRIES, INC. NORTH AMERICAN COAL CORPORATION 2018 ANNUAL REPORT TRUSTED PARTNERS. INTEGRATED SOLUTIONS. Operating in the early morning sunshine, the Marion 8400 dragline at North American Coal’s Coyote Creek Mine near Beulah, North Dakota, removes overburden before the coal below is mined for delivery to the Coyote Station power plant. Contents North American Coal Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Selected Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover OUR OPERATIONS We operate 9 surface coal mines and 18 aggregates quarries . We delivered 38 .5 million tons of coal and 35 .4 million cubic yards of limestone in 2018 . We operate more draglines than anyone else in the U .S . (over 40), and we have recently launched Mitigation Resources of North America to create and sell stream, wetland and species habitat credits . Cover, clockwise from top left: A Wirtgen© surface miner is used to extract coal at Camino Real Fuels’ Eagle Pass mine in Texas. u North American Mining operates a Bucyrus-Erie 8200 dragline for White Rock Quarries in Miami-Dade County, Florida, to extract limestone aggregates for Florida construction projects. u North American Coal Royalty Company leases Ohio Utica reserves to Ascent Resources, which uses a drill rig to extract natural gas and oil. u Mature hardwoods flourish along a tributary of the Big Black River at Mitigation Resources of North America’s Tobaksákola mitigation site in Webster County, Mississippi. 1 NACCO Industries, Inc..SELECTED FINANCIAL AND OPERATING DATA NACCO Industries, Inc. and Subsidiaries 2018 Year Ended December 31 2016(1) (In thousands, except per share data and share amounts) 2017(1) 2015 2014(1) Operating Statement Data: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135,375 $ 43,624 $ 104,778 $ 32,814 $ 111,081 (1,659) $ $ 147,998 $ (3,727) $ 172,702 $ (94,486) Income (loss) from continuing operations . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,785 – $ 34,785 $ 28,463 1,874 $ 30,337 $ 2,956 26,651 $ 29,607 $ 2,273 19,711 $ 21,984 $ (56,850) 18,732 $ (38,118) Basic Earnings (Loss) per Share: Income (loss) from continuing operations . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . . . Diluted Earnings (Loss) per Share: Income (loss) from continuing operations . . . . . . . . . . Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . . Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . . Per Share and Share Data: Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Market value at December 31(3) . . . . . . . . . . . . . . . . . . . Stockholders’ equity at December 31 . . . . . . . . . . . . . Actual shares outstanding at December 31(4) . . . . . . . . Basic weighted average shares outstanding(4) . . . . . . . Diluted weighted average shares outstanding(4) . . . . . $ $ $ $ 5.02 – 5.02 5.00 – 5.00 $ 0.6600 $ 33.90 $ 36.22 6.921 6.924 6.960 $ $ $ $ 4 .17 0 .27 4 .44 4 .14 0 .27 4 .41 $ 0 .9775 37 .65 $ 32 .03 $ 6 .852 6 .830 6 .873 $ $ $ $ 0 .43 3 .91 4 .34 0 .43 3 .89 4 .32 $ 1 .0650 90 .55 $ 32 .50 $ 6 .779 6 .818 6 .854 $ $ $ $ 0 .32 2 .82 3 .14 0 .32 2 .81 3 .13 $ 1 .0450 42 .20 $ 29 .42 $ 6 .837 7 .001 7 .022 $ $ $ $ (7 .42) 2 .40 (5 .02) (7 .42) 2 .40 (5 .02) $ 1 .0225 59 .36 $ 29 .23 $ 7 .236 7 .590 7 .590 (1) During 2014, North American Coal recorded a non-cash, asset impairment charge of $105 .1 million . During 2016 and 2017, North American Coal recorded additional non-cash impairment charges of $17 .4 million and $1 .0 million, respectively . (2) On September 29, 2017, the Company spun off Hamilton Beach Brands Holding Company (HBBHC), a former wholly owned subsidiary . The results of operations of HBBHC are reflected as discontinued operations in the table above. (3) The 2017 values reflect the effect of the spin-off of HBBHC as a separate public company. (4) Share amounts in millions . 2 SELECTED FINANCIAL AND OPERATING DATA 2018 2017(1) Year Ended December 31 2016(1) (In thousands, except employee data) 2015 2014(1) Balance Sheet Data at December 31: Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,257 $ 376,991 6,367 $ $ 250,704 $ 101,600 $ 389,552 $ 42,021 $ 219,448 $ 69,308 $ 668,021 $ 94,295 $ 220,293 $ 35,701 $ 655,408 $ 110,113 $ 201,138 $ 54,148 $ 770,520 $ 137,978 $ 211,474 Cash Flow Data: Provided by operating activities(5) . . . . . . . . . . . . . . . . . Used for investing activities(5) . . . . . . . . . . . . . . . . . . . . . Consolidated Cash Flow before financing activities (5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,622 $ (18,387) $ 41,305 $ (15,005) $ 93,935 (9,817) $ $ 108,002 (8,291) $ $ 19,799 $ (74,934) $ 36,235 $ 26,300 $ 84,118 $ 99,711 $ (55,135) Provided by (used for) financing activities(5) . . . . . . . . $ (52,578) $ (2,306) $ (55,710) $ (108,301) $ 20,979 Other Data: Total employees at December 31(7) . . . . . . . . . . . . . . . . 2,400 2,300 3,600 3,600 4,000 (5) Includes both continuing operations and discontinued operations for all years presented . (6) Cash Flow before financing activities is equal to net cash provided by operating activities less net cash used for investing activities. (7) Includes employees from HBBHC from 2014 to 2016, Centennial Natural Resources for 2014 and the unconsolidated mines for all years presented . 2018 2017(1) Year Ended December 31 2016(1) (In thousands) 2015 2014(1) Calculation of Adjusted EBITDA from continuing operations(8) Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discontinued operations, net of tax . . . . . . . . . . . . . . . . Centennial long-lived asset impairment charge . . . . . Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation, depletion and amortization expense Adjusted EBITDA from continuing operations(8) . . . . . $ 34,785 – – 7,378 1,998 (865) 14,683 $ 57,979 $ 30,337 (1,874) 982 639 3,440 (222) 12,767 $ 46,069 $ 29,607 (26,651) 17,443 (9,649) 4,318 (196) 13,050 $ 27,922 $ 21,984 (19,711) – (9,510) 4,962 (418) 17,372 $ 14,679 $ (38,118) (18,732) 105,119 (45,199) 6,062 (827) 22,329 $ 30,634 (8) Adjusted EBITDA from continuing operations is provided solely as a supplemental disclosure with respect to operating results . Adjusted EBITDA from continuing operations does not represent net income, as defined by U.S. GAAP and should not be considered as a substitute for net income, or as an indicator of operating performance. NACCO defines Adjusted EBITDA from continuing operations as income from continuing operations before long-lived asset impairment charges and income taxes plus net interest expense and depreciation, depletion and amortization expense . Adjusted EBITDA from continuing operations is not a measurement under U.S. GAAP and is not necessarily comparable with similarly titled measures of other companies. 3 NACCO Industries, Inc.. TO OUR STOCKHOLDERS NACCO Industries, Inc ., the public parent company of The North American Coal Corporation, delivered solid profitability in 2018 of $34.8 million in income from continuing operations, a 22% increase over the prior year income of $28 .5 million . In September 2017, NACCO completed the spin-off of its housewares- related businesses . Since that time, we have been focused on preserving North American Coal’s existing long-term customer relationships and pursuing growth opportunities that leverage North American Coal’s core competencies . We are proud of our long-term customer relationships and our unique business model that provide customers with low-cost coal and aggregates while providing us with steady cash flow generation. North American Coal is not a typical mining company . It operates more like a service business . Most customer contracts are based on a “management fee” approach, whereby compensation includes reimbursement of all operating costs, plus a comparatively small but consistent fee based primarily on deliveries . Since we only receive fee compensation when customers take deliveries, the business model aligns our focus with customer objectives, helping customers achieve their desired results through reduced costs, improved quality and/or other specific objectives. Our unique business model forms partnerships with We are proud of our long-term customer relationships and our unique business model our customers that can last for decades . As an example, North American Coal’s Falkirk Mine began delivering coal to its customer in 1978, and Falkirk’s contract does not expire until 2045 . As highlighted by our new North American Coal website, www .nacoal .com, launched in 2018, a key focus of our business model is to provide Integrated Solutions for our customers . North American Coal operates coal mines that are exclusively dedicated to providing fuel for customer power plants or activated carbon facilities . North American Mining maintains and operates draglines that are an integral part of aggregate production at customer quarries . In recent years, we have expanded our scope of services to existing customers to include ash haulage and coal drying services, among others . Because our operations are 4 TO OUR STOCKHOLDERS adjacent to and integrated into our customers’ operations, the services we provide are integral to our customers’ success . Safety is our number-one priority at every mine site, every day and with every employee in mind . The National Mining Association ranks North American Coal as an industry leader in safety. We believe safety, efficiency and productivity form the basis for creating value for our customers . North American Coal designs and follows operating procedures that strengthen safety, empower employees and ensure full compliance with local, state and federal regulations . The result: customers have peace of mind knowing that North American Coal consistently runs a safe, cost-efficient operation. Surface Coal Mining North American Coal operates nine surface coal mines . These mines delivered 38 .5 million tons of coal in 2018, primarily under long-term contracts that generate predictable earnings and strong cash flow. Coal is surface mined in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico . North American Coal’s mines supply coal primarily to power generation companies and, to a lesser extent, activated carbon facilities . Each mine delivers coal to its customer’s adjacent, or nearby, power plant, synfuels plant or activated carbon facility and is the exclusive supplier to its customer’s facility, with the exception of Camino Real Fuels Company (“Camino Real”) . Camino Real’s customer takes all coal produced by the mine, but also purchases additional coal from other suppliers . All but one of our coal mining locations operate pursuant to “management fee” contracts . Under these contracts, North American Coal is responsible for all mine operations while the customer is responsible for funding all mine operating costs and provides, or provides support for, all of the capital required to build and operate the mine . Because of the way these contracts are structured, NACCO does not consolidate the results of these operations in its financial statements. Instead, we report the pre-tax profits earned under these “management fee” contracts as “Earnings of unconsolidated mines” on the income statement . While we do not consolidate these entities, the selling, general and administrative Left: A Kress coal truck at the Falkirk Mine in North Dakota delivers 200 tons of coal to its customer’s power plant. The coal will be delivered to the plant via the newly constructed silo feed conveyor pictured in the background. Right: A P&H 2800XP shovel and a fleet of trucks work into the evening at The Coteau Properties Company’s Freedom Mine in North Dakota. 5 NACCO Industries, Inc..expenses reported on the income statement include expenses to support both the consolidated and unconsolidated operations . North American Coal is paid a “management fee” per ton of coal or heating unit (MMBtu) delivered. Each contract specifies the indices and mechanics by which fees change over time, generally in line with broad measures of U .S . inflation. This contract structure eliminates exposure to spot coal market price fluctuations. North American Coal’s customers that operate under “management fee” contracts have the obligation to fund final mine reclamation activities. Under certain contracts, North American Coal holds the mine permit and is responsible for final mine reclamation activities and, to the extent North American Coal performs such final reclamation, it receives fee income for its services. North American Coal and its customers are committed to excellence in environmental stewardship . Our permitting, mining and reclamation activities utilize state-of-the-art technology to ensure that activities comply with, or exceed, legal requirements . Reclamation work is performed concurrent with mining, with a commitment to excellence to return disturbed land to a productive natural state that is often better than pre-mining conditions . Mississippi Lignite Mining Company (“MLMC”) delivers coal to a power plant adjacent to the mine under a contract that runs through 2032 . The MLMC contract North American Coal’s manage- ment fee contract structure eliminates exposure to spot coal market price fluctuations is the Company’s only coal contract in which North American Coal is responsible for all operating costs, capital requirements and final mine reclamation. Mining is a capital-intensive industry, and MLMC requires capital spending that can be significant in certain years to open new mine areas, secure land and coal for future mining and acquire replacement equipment . The contractual price received for coal sales adjusts monthly primarily based on changes in the level of established indices, which reflect general U.S. inflation rates, including cost components such as labor and diesel fuel. Profitability at MLMC is affected by three key components – customer demand for coal, changes in the indices that determine sales price and actual costs incurred . A continuous focus on driving down production costs and maximizing efficiency and operating capacity at mine locations benefits both customers and North American Coal, as fuel cost is the major driver for power plant dispatch . Increased power plant dispatch drives increased demand for coal by North American Coal’s customers . A Bucyrus-Erie 2570W dragline at The Coteau Properties Company’s Freedom Mine is shown moving to a new mine area adjacent to Basin Electric Power Cooperative’s Antelope Valley Power Station and Dakota Gasification Company’s Great Plains Synfuels Plant. 6 We believe that the power plants we supply are generally younger and more efficient, with better environmental controls than most power plants that have closed in recent years . Many of our customers continue to invest in efficiency and environmental upgrades to their facilities. Because these power plants are competitive suppliers of electricity in their respective dispatch areas, we consider our surface coal mining operations to be well positioned relative to competitors, despite the challenges facing both the coal mining and electric generation industries . Securing new coal mining opportunities is a strategic priority . During the last 10 years, North American Coal built five new coal mines and assumed operation of an existing mine for a new customer; a significant accomplishment in an industry in transition . A substantial percentage of the 2018 earnings of unconsolidated mines was derived from these mines . While the development of new coal-fired power plants is likely to be limited, we continue to pursue opportunities to assume operation of existing mines for new customers . We believe that the United States should adopt a domestic energy policy that balances affordability, energy needs and environmental responsibility . Coal must remain an integral part of the nation’s total energy mix for the foreseeable future to allow the United States to remain competitive in the global economy. New domestic coal-fired power plants and greenfield coal mining opportunities for power generation are unlikely to occur without the adoption of a balanced energy policy in which coal continues to play a key role . GROWTH OUTSIDE THE COAL INDUSTRY North American Mining North American Coal’s North American Mining division serves as a platform for growth outside the coal industry by leveraging core mining capabilities that can be applied to the aggregates industry . North American Mining maintains and operates draglines and other equipment for sellers of aggregates under long-term contracts . By focusing on the mining aspects of customers’ quarry operations, North American Mining creates value for its customers by improving mining productivity and efficiencies, allowing customers to focus on areas where they can add the most value — final processing and product sales. North American Mining’s current contracts primarily relate to maintaining and operating draglines and other equipment, providing a much more focused service to its customers than managing the operations of an entire coal mine . Since 2015, North American Mining has grown from serving two customers with seven quarries utilizing 10 draglines, to serving eight customers with 18 quarries utilizing 24 draglines and a rope shovel as of December 31, 2018. By the end of the first quarter of 2019, North American Mining is expected to expand its operations to 28 draglines . North American Mining is also focused on expanding the scope of work it does for its customers, with the ability to offer a full range of Integrated Solutions related to mining . North American Coal is skilled in permitting, land and mineral acquisition, overburden removal, drilling and blasting, load and haul and operating In Sumter County, Florida, a Bucyrus-Erie 770B dragline operated and maintained by North American Mining excavates limestone at the Center Hill quarry owned by CEMEX. 7 NACCO Industries, Inc..other mining equipment, such as excavators, shovels, motor graders, conveyors and material handling systems . We believe our current and prospective customers could benefit from allowing North American Mining to leverage the skills obtained from the coal business to operate the majority of mining and extraction activities so they can focus on their strengths in processing and selling mined products . While North American Mining currently operates primarily in Florida, it is focused on expanding its footprint outside Florida and into mining materials other than limestone . North American Mining recently signed a contract to operate a dragline at a small sand and gravel operation near Richmond, Virginia, beginning in 2019, and continues to pursue other opportunities outside Florida . North American Mining operates under both “management fee” contracts and contracts that reflect a more traditional business model. North American Coal Royalty Company North American Coal Royalty Company derives income primarily from royalty-based lease payments under which the lessee makes payments based on its sales of natural gas and, to a lesser extent, oil and coal, extracted by third parties. Royalty income can fluctuate in response to a number of factors outside the Company’s control, including fluctuations in commodity prices and the availability of infrastructure, and the lessees’ willingness and ability to incur well- development and other operating costs. We experienced significant increases in royalty income in both 2017 and 2018 compared with prior years . We believe royalty income could increase in 2019, based on the number of gas wells being developed and operated by lessees to extract Ohio Utica shale oil and gas assets, and the expected continuing development of infrastructure in this area . Whether or not these increased levels of income continue depends on the factors noted above . North American Coal Royalty Company will continue to look for future opportunities to grow royalty income through expanded leasing of its oil and gas assets to third parties . Mitigation Resources of North America North American Coal is widely recognized for the quality of its work to remediate streams, wetlands and habitats disturbed by mining, often returning these areas to a condition better than pre-mining conditions . Through these environmental activities, North American Coal has gained substantial knowledge 8 and skills that are well suited for restoration projects . In our pursuit of growth and to further leverage North American Coal’s core competencies, we formed Mitigation Resources of North America to offer tailored solutions to customers whose activities disturb streams, wetlands or species habitats . Mitigation Resources of North America creates and sells mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible mitigation . As a mitigation banker, Mitigation Resources of North America obtains sites with impaired streams, wetlands or species habitats and restores, enhances or preserves them, which results in the creation of mitigation credits that can be sold to offset disturbances of nearby ecologically From left to right: Chief Ironside, a Marion 8750 dragline at The Falkirk Mining Company’s Falkirk Mine in North Dakota works through the snow to remove overburden from the coal seam below. u The early morning sun shines through the bald cypress along the Yockanookany River, preserved at Mitigation Resources of North America’s Yockanookany Mitigation Bank near Kosciusko, Mississippi. u The Sabine Mining Company won the 2019 Texas Reclamation Award from The Railroad Commission of Texas Surface Mining & Reclamation Division for its “Go Native” reclamation project that reclaimed land back to its natural grassy state. similar streams, wetlands and/or habitats . In addition, permittee-responsible mitigation projects will allow Mitigation Resources of North America to utilize the Company’s “management fee” model to provide mitigation services to developers for individual mitigation projects . This business is in its early stages, but we believe there is a lot of opportunity for growth and success in this industry . We are widely recognized for the quality of our work to remediate streams, wetlands and habitats Other Value-Added Services As part of our focus on providing Integrated Solutions and expanding the scope of our services, North American Coal provides a number of other value-added services for its customers . For example, Camino Real Fuels operates and maintains a coal handling and train load-out facility . Bisti Fuels operates and maintains a sophisticated coal blending and handling facility, including an approximately 15-mile rail operation with two locomotives used to transport coal from the mine to the power plant . NoDak Energy Services, LLC operates and maintains a coal drying system, which improves the customer’s plant efficiency. A North American Coal affiliate is constructing, and will operate, a small solar power generation facility, selling the power to its customer, and several mines provide ash handling and ash management services for their customers. Further diversification can come from expanding the scope of services and providing services to additional customers . Liquidity During 2018, we continued to maintain a strong balance sheet, ending the year with $85 .3 million of cash and $11 .0 million of debt . Due in part to our strong 9 NACCO Industries, Inc..financial position, North American Coal received a credit rating upgrade in 2018 from DBRS Limited, achieving an investment grade rating of BBB (low) with a stable trend . NACCO has paid dividends since 1956 and in 2018 paid a quarterly dividend of $0 .165 per share, which is equal to an annual rate of $0 .66 per share . In February 2018, NACCO’s Board of Directors approved a stock repurchase program that allows for the repurchase of up to $25 million of the Company’s outstanding Class A common stock . During 2018, we repurchased approximately 39,000 shares of our outstanding Class A common stock for $1 .3 million . Under previous repurchase programs, we repurchased approximately 1 .9 million shares of outstanding Class A common stock for $101 .7 million from 2011 through 2017 . Cash flow before financing activities was $36.2 million in 2018. We expect continued strong cash generation in 2019 and beyond. We will first focus on utilizing cash to support growth initiatives for both existing businesses and diversification opportunities that leverage core competencies, as well as to fund capital expenditures . Cash will also be used to maintain a conservative leverage ratio as high leverage introduces risks that are not consistent with our long-term strategy . We remain focused on increasing long-term shareholder value rather than on quarterly earnings or short-term stock price movement . We take a long-term view of our business, just as we believe in building long-term customer relationships . We take a long-term view of our business and remain focused on increasing long-term shareholder value Our strong balance sheet, our stable cash flows from our long-term management-fee contracts, and our long-term shareholder base leave us well situated to pursue growth opportunities through a disciplined approach . While we will continue to pursue opportunities to add new coal mining operations, we believe the scale of that growth could be limited . North American Mining will continue to serve as a platform for pursuing non-coal mining projects, whether in aggregates or other minerals . Mitigation Resources of North America allows for growth outside mining, while our North American Coal Royalty Company also has potential for future growth . As I look forward to 2019 and beyond, I am excited about the great relationships we have built with existing customers and the potential to grow the business by further leveraging our strengths . I would like to thank all of our customers and vendors, as well as NACCO’s long-term stockholders for their continued trust and support . I would also like to thank all of the hard-working and committed employees who support our customers and growth initiatives . I remain confident in our ability to create shareholder value for many years to come. J.C. Butler, Jr. President and Chief Executive Officer, NACCO Industries, Inc. and The North American Coal Corporation This annual report to stockholders contains forward-looking statements. For a discussion of the factors that may cause the Company’s actual results to differ from these forward-looking statements, refer to page 39 in the attached Form 10-K. 10 DIRECTORS AND OFFICERS NACCO Industries, Inc. North American Coal Corporation Directors: Officers: Officers: J.C. Butler, Jr. President and Chief Executive Officer J. C. Butler, Jr. President and Chief Executive Officer Elizabeth I. Loveman Vice President and Controller Thomas A. Maxwell Vice President – Financial Planning and Analysis and Treasurer John D. Neumann Vice President, General Counsel and Secretary Sarah E. Fry Associate General Counsel and Assistant Secretary Miles B. Haberer Associate General Counsel Jesse L. Adkins Associate Counsel and Assistant Secretary Carroll L. Dewing Vice President – Operations LaVern K. Lund Vice President – Business Development John D. Neumann Vice President, General Counsel and Secretary J. Patrick Sullivan, Jr. Vice President and Chief Financial Officer Harry B. Tipton, III Vice President – Engineering Eric A. Dale Treasurer and Senior Director, Financial Planning and Analysis John R. Pokorny Controller Sarah E. Fry Associate General Counsel and Assistant Secretary Miles B. Haberer Associate General Counsel, Assistant Secretary and President, North American Coal Royalty Company Jesse L. Adkins Associate Counsel and Assistant Secretary Andrew B. Hart Assistant Controller J.C. Butler, Jr. President and Chief Executive Officer, NACCO Industries, Inc. President and Chief Executive Officer, The North American Coal Corporation John S. Dalrymple Former Governor of the State of North Dakota John P. Jumper Retired Chief of Staff, United States Air Force Dennis W. LaBarre Retired Partner, Jones Day Timothy K. Light Retired Senior Vice President, American Electric Power Service Corporation Michael S. Miller Retired Managing Director, The Vanguard Group Richard de J. Osborne Retired Chairman and Chief Executive Officer, ASARCO Incorporated Alfred M. Rankin, Jr. Non-Executive Chairman, NACCO Industries, Inc. Chairman, President and Chief Executive Officer, Hyster-Yale Materials Handling, Inc. Non-Executive Chairman, Hamilton Beach Holdings Company Matthew M. Rankin President and Chief Executive Officer, Carlisle Residential Properties Britton T. Taplin Self employed (personal investments) David B. H. Williams Partner, Williams, Bax & Saltzman, P.C. 3341_Cover.qxp_3341_Cov 3/8/17 3:54 PM Page 2 3341_Cover.qxp_3341_Cov 3/8/17 3:54 PM Page 2 NACCO Industries, Inc. at a Glance NACCO Industries, Inc. at a Glance Principal Businesses Principal Businesses 2016 Financial Results 2016 Financial Results Market Positions Market Positions North American Coal (“NACoal”) Headquarters: Dallas, Texas North American Coal (“NACoal”) North American Coal Operations Revenues: NACoal: Headquarters: Dallas, Texas North American Coal mines coal primarily Revenues: $111.1 million NACoal: NACoal: NACoal: North American Coal is North American Coal is among the ten largest North American Coal mines coal primarily for use in power generation and provides for use in power generation and provides value-added services for natural resource value-added services for natural resource companies. companies. NACoal Operations MINING MINING The Coteau Properties Company Coyote Creek Mining Company Operating profit: $111.1 million Operating profit: $5.6 million Net income: $5.6 million Net income: $8.2 million Adjusted income:(1) $8.2 million Adjusted income:(1) $25.4 million Equity: $25.4 million Equity: $105.6 million Return on Equity:(1) $105.6 million Return on Equity:(1) The Falkirk Mining Company 7.5% Return on Capital 7.5% NoDak Energy Services LLC Return on Capital Employed:(1) Employed:(1) 5.2% 5.2% among the ten largest coal producers in the coal producers in the United States. United States. Coal is delivered from Coal is delivered from developed mines in North developed mines in North Dakota, Texas, Mississippi, Dakota, Texas, Mississippi, Louisiana, and within the Louisiana, and within the Navajo Nation in New Navajo Nation in New Mexico to adjacent or Mexico to adjacent or nearby power plants or nearby power plants or coal processing facilities. coal processing facilities. Hamilton Beach Brands (“HBB”) Hamilton Beach Brands (“HBB”) Headquarters: Richmond, Virginia Headquarters: Richmond, Virginia HBB is a leading designer, marketer and Bisti Fuels Company HBB is a leading designer, marketer and distributor of small electric household and distributor of small electric household and specialty housewares appliances, as well as specialty housewares appliances, as well as commercial products for restaurants, bars Corporate Office commercial products for restaurants, bars and hotels. and hotels. HBB has a broad portfolio of some of the HBB has a broad portfolio of some of the most recognized and respected brands in most recognized and respected brands in the small electric appliance industry, including the small electric appliance industry, including Hamilton Beach®, Proctor Silex®, Hamilton Hamilton Beach®, Proctor Silex®, Hamilton Beach® Commercial and Weston®. HBB also Beach® Commercial and Weston®. HBB also sells products under licensed brands such sells products under licensed brands such as Wolf Gourmet® and CHI®**. as Wolf Gourmet® and CHI®**. Caddo Creek Resource Company HBB: HBB: The Sabine Mining Company HBB: Revenues: Mississippi Lignite Mining Company Revenues: $605.2 million Operating profit: $605.2 million Operating profit: $43.0 million ★ Net income: $43.0 million Net income: $26.6 million Equity: $26.6 million Demery Resources Company Equity: $44.1 million Return on Equity:(1) $44.1 million Return on Equity:(1) 51.1% North American Mining Return on Capital 51.1% Camino Real Fuels Return on Capital Employed:(1) Employed:(1) 30.5% 30.5% HBB: HBB is a leading company HBB is a leading company in retail and commercial in retail and commercial small appliances, with small appliances, with strong share positions in Liberty Fuels Company strong share positions in many of the categories many of the categories in which it competes. in which it competes. HBB products are primarily HBB products are primarily distributed through mass distributed through mass merchants, national merchants, national department stores, whole- department stores, whole- sale distributors, other sale distributors, other retail sales outlets and retail sales outlets and the Internet. the Internet. Surface Coal Mining Operations North American Mining Value-Added Services New Operation Since 2010 * * Form 10-K (440) 229-5130 Computershare P.O. Box 30170 Computershare Legal Counsel Accounting Firm Kitchen Collection Kitchen Collection Headquarters: Chillicothe, Ohio Headquarters: Chillicothe, Ohio Kitchen Collection is a national specialty Kitchen Collection is a national specialty retailer of kitchenware in outlet malls retailer of kitchenware in outlet malls throughout the United States. throughout the United States. For 2016 Large Surface Coal Mines Awarded to The Freedom Mine The North American Coal Corporation Kitchen Collection: Kitchen Collection: Revenues: Contents Revenues: $144.4 million Operating profit: $144.4 million Kitchen Collection: Kitchen Collection: Kitchen Collection is Kitchen Collection is a leading specialty a leading specialty retailer of kitchen Discussion of Results . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Operating profit: $0.4 million Selected Financial and Operating Data . . . . . . . . . . . . .2 retailer of kitchen and related products Net loss: $0.4 million Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . .4 and related products in outlet malls with Net loss: $0.4 million Equity: $0.4 million Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 in outlet malls with 223 stores throughout 223 stores throughout the United States at Equity: $21.4 million Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 118 the United States at December 31, 2016. Return on Equity:(1) $21.4 million Corporate Information . . . . . . . . . . . . Inside Back Cover December 31, 2016. (cid:31) (cid:31) (cid:31) Cover Photo: The Coteau Properties Company’s Freedom Mine uses a Bucyrus-Erie 2570W dragline to remove overburden before the coal below is mined. The Freedom Mine is North American Coal’s largest mining operation. The Freedom Mine operates three 2570 draglines, and each can remove T as much as 120 cubic yards of overburden in one bucket. (1) This Annual Report contains references to non-GAAP financial measures. Presentations of, and quantitative reconciliations to, the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”) appear on page 14. (1) This Annual Report contains references to non-GAAP financial measures. Presentations of, and quantitative reconciliations to, the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”) appear on page 14. **Wolf Gourmet® is a registered trademark of the Sub-Zero Group, Inc. **Wolf Gourmet® is a registered trademark of the Sub-Zero Group, Inc. **CHI® is a registered trademark of Farouk Systems, Inc. **CHI® is a registered trademark of Farouk Systems, Inc. Return on Equity:(1) (1.6%) Return on Capital (1.6%) Return on Capital Employed:(1) Employed:(1) (1.2%) (1.2%) Corporate Information Corporate Information Annual Meeting Annual Meeting Stock Exchange Listing Stock Exchange Listing The Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 9, 2017, at 2:30 p.m. at the corporate office located at: 5875 Landerbrook Drive, Cleveland, Ohio 44124 The Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 9, 2017, at 2:30 p.m. at the corporate office located at: 5875 Landerbrook Drive, Cleveland, Ohio 44124 CORPORATE INFORMATION Corporate Information The New York Stock Exchange Symbol: NC Investor Relations Contact The New York Stock Exchange Symbol: NC Investor Relations Contact Investor questions may be addressed to: Investor questions may be addressed to: Stock Transfer Agent and Registrar Form 10-K Stockholder Correspondence: NACCO Industries Website Investor Relations NACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220 Cleveland, Ohio 44124 Additional copies of the Company’s Form 10-K filed with the Securities and Exchange Commission are available free of charge through NACCO Industries’ website (www.nacco.com) or by request to: Investor Relations NACCO Industries, Inc. Independent Registered Public 5875 Landerbrook Drive, Suite 220 Accounting Firm Cleveland, Ohio 44124 Ernst & Young LLP (440) 229-5130 950 Main Ave ., Suite 1800 E-mail: ir@naccoind.com Cleveland, Ohio 44113 Investor Relations Additional copies of the Company’s Form 10-K filed NACCO Industries, Inc. with the Securities and Exchange Commission are 5875 Landerbrook Drive, Suite 220 Annual Meeting available free of charge through NACCO Industries’ Cleveland, Ohio 44124 The Annual Meeting of Stockholders of NACCO website (www.nacco.com) or by request to: (440) 229-5130 Industries, Inc. will be held on May 16, 2018, at E-mail: ir@naccoind.com 11:00 a.m. at the corporate office located at: 5875 Landerbrook Drive, Cleveland, Ohio 44124 Annual Meeting The Annual Meeting of Stockholders of NACCO Industries, Inc . will be held on May 8, 2019, at 11:00 a.m. at the corporate office located at: 5875 Landerbrook Drive, Cleveland, Ohio 44124 Investor Relations NACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220 Cleveland, Ohio 44124 (440) 229-5130 Form 10-K Form 10-K Additional copies of the Company’s Form Additional copies of the Company’s Form 10-K filed 10-K filed with the Securities and Exchange with the Securities and Exchange Commission are Commission are available free of charge through available free of charge through NACCO Industries’ Stock Transfer Agent and Registrar NACCO Industries’ website (www.nacco.com) or website (www.nacco.com) or by request to: by request to: Stockholder Correspondence: Investor Relations Investor Relations Computershare NACCO Industries, Inc. NACCO Industries, Inc . P.O. Box 30170 5875 Landerbrook Drive, Suite 220 5875 Landerbrook Drive, Suite 220 College Station, TX 77842-3170 Cleveland, Ohio 44124 Cleveland, Ohio 44124 (440) 229-5130 (440) 229-5130 Independent Registered Public Accounting Firm Ernst & Young LLP 950 Main Ave., Suite 1800 Cleveland, Ohio 44113 NACCO Industries Website Stock Exchange Listing Stock Exchange Listing Additional information on NACCO Industries Additional information on NACCO Industries The New York Stock Exchange The New York Stock Exchange may be found at the corporate website, Symbol: NC may be found at the corporate website, Symbol: NC www.nacco.com. The Company considers this www.nacco.com. The Company considers this Investor Relations Contact website to be one of the primary sources of website to be one of the primary sources of Investor Relations Contact Investor questions may be addressed to: information for investors and other interested information for investors and other interested Investor questions may be addressed to: Investor Relations parties. parties. Investor Relations NACCO Industries, Inc . NACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220 Subsidiary Company Websites 5875 Landerbrook Drive, Suite 220 Cleveland, Ohio 44124 The websites for NACCO’s subsidiaries are Cleveland, Ohio 44124 The websites for NACCO’s subsidiaries are (440) 229-5130 Overnight Correspondence: (440) 229-5130 as follows: as follows: E-mail: ir@naccoind .com Computershare E-mail: ir@naccoind.com Stock Transfer Agent and Registrar Hamilton Beach Brands–U.S.: Stock Transfer Agent and Registrar Hamilton Beach Brands–U.S.: 211 Quality Circle, Suite 210 NACCO Industries Website Stockholder Correspondence: www.hamiltonbeach.com Stockholder Correspondence: www.hamiltonbeach.com College Station, TX 77845 NACCO Industries Website Additional information about NACCO Industries Computershare www.proctorsilex.com www.proctorsilex.com Computershare Additional information about NACCO Industries may be found at www.nacco.com . The Company (800) 622-6757 (U.S., Canada and Puerto Rico) P.O. Box 505000 www.commercial.hamiltonbeach.com www.commercial.hamiltonbeach.com P .O . Box 505000 may be found at www.nacco.com. The Company considers this website to be one of the primary (781) 575-4735 (International) Louisville, KY 40233-5000 Hamilton Beach Brands–Mexico: Hamilton Beach Brands–Mexico: Louisville, KY 40233-5000 considers this website to be one of the primary sources of information for investors and other www.hamiltonbeach.com.mx www.hamiltonbeach.com.mx Overnight Correspondence: sources of information for investors and other Legal Counsel Overnight Correspondence: interested parties . Weston Brands: Weston Brands: Computershare interested parties. McDermott Will & Emery LLP Computershare www.westonproducts.com www.westonproducts.com North American Coal Website 462 South 4th St., Suite 1600 227 West Monroe Street 462 South 4th St ., Suite 1600 North American Coal Website Additional information about North American Kitchen Collection: Kitchen Collection: Louisville, KY 40202 Chicago, Illinois 60606 Louisville, KY 40202 Additional information about North American Coal may be found at www.nacoal.com . www.kitchencollection.com www.kitchencollection.com Coal may be found at www.nacoal.com. North American Coal: North American Coal: www.nacoal.com www.nacoal.com (800) 622-6757 (U.S., Canada and Puerto Rico) (781) 575-4735 (International) McDermott Will & Emery LLP 227 West Monroe Street Chicago, Illinois 60606 (800) 622-6757 (U.S., Canada and Puerto Rico) (800) 622-6757 (U .S ., Canada and Puerto Rico) Independent Registered Public (781) 575-4735 (International) (781) 575-4735 (International) Accounting Firm 211 Quality Circle, Suite 210 College Station, TX 77845 Subsidiary Company Websites College Station, TX 77842-3170 Overnight Correspondence: Independent Registered Public Ernst & Young LLP 950 Main Ave., Suite 1800 Cleveland, Ohio 44113 Ernst & Young LLP Legal Counsel Legal Counsel 950 Main Ave., Suite 1800 McDermott Will & Emery LLP McDermott Will & Emery LLP 444 West Lake Street Cleveland, Ohio 44113 444 West Lake Street Chicago, Illinois 60606 Chicago, Illinois 60606 (cid:31) (cid:31) (cid:9)(cid:18)(cid:14)(cid:3)(cid:6)(cid:8)(cid:4)(cid:34)(cid:3)(cid:9)(cid:26)(cid:10)(cid:13)(cid:14)(cid:22)(cid:10)(cid:26)(cid:20)(cid:3)(cid:19)(cid:13)(cid:14)(cid:23)(cid:29)(cid:16)(cid:14)(cid:27)(cid:3)(cid:32)(cid:24)(cid:24)(cid:13)(cid:3)(cid:16)(cid:11)(cid:14)(cid:26)(cid:27)(cid:3)(cid:12)(cid:24)(cid:22)(cid:19)(cid:23)(cid:17)(cid:3)(cid:15)(cid:26)(cid:24)(cid:22)(cid:3)(cid:15)(cid:24)(cid:26)(cid:14)(cid:27)(cid:28)(cid:27)(cid:3)(cid:32)(cid:18)(cid:19)(cid:12)(cid:18)(cid:3)(cid:18)(cid:10)(cid:31)(cid:14)(cid:3)(cid:11)(cid:14)(cid:14)(cid:23)(cid:3)(cid:12)(cid:14)(cid:26)(cid:29)(cid:15)(cid:14)(cid:13)(cid:3)(cid:19)(cid:23)(cid:3)(cid:10)(cid:12)(cid:12)(cid:24)(cid:26)(cid:13)(cid:10)(cid:23)(cid:12)(cid:14)(cid:3)(cid:32)(cid:19)(cid:28)(cid:18)(cid:3)(cid:28)(cid:18)(cid:14)(cid:3)(cid:26)(cid:30)(cid:21)(cid:14)(cid:27)(cid:3)(cid:24)(cid:15)(cid:3)(cid:28)(cid:18)(cid:14)(cid:3)(cid:6)(cid:24)(cid:26)(cid:14)(cid:27)(cid:28)(cid:3)(cid:8)(cid:28)(cid:14)(cid:32)(cid:10)(cid:26)(cid:13)(cid:27)(cid:18)(cid:19)(cid:25)(cid:3)(cid:4)(cid:24)(cid:30)(cid:23)(cid:12)(cid:19)(cid:21)(cid:34)(cid:33) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) The FSC® Trademark identifies wood fibers coming from forests which have been certified (cid:31) (cid:9)(cid:18)(cid:14)(cid:3)(cid:6)(cid:8)(cid:4)(cid:34)(cid:3)(cid:9)(cid:26)(cid:10)(cid:13)(cid:14)(cid:22)(cid:10)(cid:26)(cid:20)(cid:3)(cid:19)(cid:13)(cid:14)(cid:23)(cid:29)(cid:16)(cid:14)(cid:27)(cid:3)(cid:32)(cid:24)(cid:24)(cid:13)(cid:3)(cid:16)(cid:11)(cid:14)(cid:26)(cid:27)(cid:3)(cid:12)(cid:24)(cid:22)(cid:19)(cid:23)(cid:17)(cid:3)(cid:15)(cid:26)(cid:24)(cid:22)(cid:3)(cid:15)(cid:24)(cid:26)(cid:14)(cid:27)(cid:28)(cid:27)(cid:3)(cid:32)(cid:18)(cid:19)(cid:12)(cid:18)(cid:3)(cid:18)(cid:10)(cid:31)(cid:14)(cid:3)(cid:11)(cid:14)(cid:14)(cid:23)(cid:3)(cid:12)(cid:14)(cid:26)(cid:29)(cid:15)(cid:14)(cid:13)(cid:3)(cid:19)(cid:23)(cid:3)(cid:10)(cid:12)(cid:12)(cid:24)(cid:26)(cid:13)(cid:10)(cid:23)(cid:12)(cid:14)(cid:3)(cid:32)(cid:19)(cid:28)(cid:18)(cid:3)(cid:28)(cid:18)(cid:14)(cid:3)(cid:26)(cid:30)(cid:21)(cid:14)(cid:27)(cid:3)(cid:24)(cid:15)(cid:3)(cid:28)(cid:18)(cid:14)(cid:3)(cid:6)(cid:24)(cid:26)(cid:14)(cid:27)(cid:28)(cid:3)(cid:8)(cid:28)(cid:14)(cid:32)(cid:10)(cid:26)(cid:13)(cid:27)(cid:18)(cid:19)(cid:25)(cid:3)(cid:4)(cid:24)(cid:30)(cid:23)(cid:12)(cid:19)(cid:21)(cid:34)(cid:33) (cid:31) (cid:31) (cid:31) Environmental Benefits E Environmental Benefits Environmental Benefits This Annual Report on Form 10­K is printed using post­consumer waste recycled paper and vegetable­based inks. E E By using this environmental paper, NACCO Industries, Inc. saved the following resources: This Annual Report on Form 10­K is printed using post­consumer waste recycled paper and vegetable­based inks. This Annual Report on Form 10­K is printed using post­consumer waste recycled paper and vegetable­based inks. By using this environmental paper, NACCO Industries, Inc. saved the following resources: By using this environmental paper, NACCO Industries, Inc. saved the following resources: B Environmental Benefits B E B B This Annual Report on Form 10­K is printed using post­consumer waste recycled paper and vegetable­based inks. B B By using this environmental paper, NACCO Industries, Inc. saved the following resources: B B B B (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) (cid:31) 29 trees pre­ served for the future 83 lbs. water­ borne waste not created pre­ s pre­ 11 trees pre­ pre­ s pre­ served for the s 29 trees pre­ 11 trees pre­ 12,260 gal. s pre­ future pre­ served for the served for the wastewater s s future future flow saved 31 lbs. water­ borne waste 83 lbs. water­ 31 lbs. water­ not created borne waste borne waste not created not created 2,671 lbs. net greenhouse gases prevented 4,667 gal. wastewater 12,260 gal. 4,667 gal. flow saved wastewater wastewater flow saved flow saved 516 lbs. solid waste 1,356 lbs. 516 lbs. not generated solid waste solid waste not generated not generated 20,442,500 BTUs energy not consumed 1,356 lbs. solid waste not generated 1,887 lbs. net greenhouse 2,671 lbs. net 1,887 lbs. net gases prevented greenhouse greenhouse gases prevented gases prevented 7,782,600 BTUs energy 20,442,500 7,782,600 not consumed BTUs energy BTUs energy not consumed not consumed 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(cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) (cid:3) 5875 Landerbrook Drive, Suite 220 • Cleveland, Ohio 44124 An Equal Opportunity Employer 

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