®
2019 ANNUAL REPORT
PARTNERS
SOLUTIONS
RESULTS
TOGETHER WE DELIVER
With our core competency deeply rooted in mining, our
diverse portfolio of affiliated businesses provides integrated
solutions for our customers .
TRUSTED PARTNERS. INTEGRATED SOLUTIONS.
POWERFUL RESULTS.
Contents
Our Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Selected Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Back Cover
NACCO Industries, Inc .®
OUR OPERATIONS
In 2019, NACCO Industries, Inc. and subsidiaries continued to focus on building long-term shareholder value
by executing on strategies to grow and diversify; adding new locations to an already diverse geographic footprint.
Our Operations Include:
• Nine surface coal mines, with 34.6 million tons
of coal delivered in 2019
• Five mitigation banks in development as of
December 31, 2019
• 20 aggregates quarries, with 44.7 million tons
• 44,860 gross acres of oil and gas mineral interests
of limestone delivered in 2019
across six states
The Coteau Properties Company
The Falkirk Mining Company
Coyote Creek Mining Company
The Coteau Properties Company
The Falkirk Mining Company
NoDak Energy Services LLC
Coyote Creek Mining Company
Sawtooth Mining Company
Sawtooth Mining Company
NoDak Energy Services LLC
Bisti Fuels Company
Bisti Fuels Company
The Sabine Mining Company
The Sabine Mining Company
Mississippi Lignite Mining Company
Caddo Creek Resources Company
Mississippi Lignite Mining Company
Caddo Creek Resources Company
Corporate Office
Corporate Office
Corporate Office
Corporate Office
★
★
★
★
Demery Resources Company
Demery Resources Company
★
★
Camino Real Fuels
Camino Real Fuels
Headquarters
Headquarters
1
● Surface Coal Mining Operations ● North American Mining Operations ● Value-Added Services
● Surface Coal Mining Operations ● North American Mining Operations ● Value-Added Services
◆ Catapult Mineral Partners’ Mineral Interests ◆ Mitigation Resources of North America®’s Mitigation Banks
◆ Catapult Mineral Partners’ Mineral Interests ◆ Mitigation Resources of North America®’s Mitigation Banks
New Operation Since 2010
New Operation Since 2010
Photos inside front cover. Center: a dragline operated by North American Mining provides exceptional service for a customer in Florida;
top right: employees review mine progress at a Mississippi mine site; middle right: the view from a dragline at a North Dakota mine site; and
bottom right: a field of reclaimed land at the Sabine Mine in Texas.
SELECTED FINANCIAL AND OPERATING DATA
NACCO Industries, Inc. and Subsidiaries
2019
Year Ended December 31
2017(1)
(In thousands, except per share data and share amounts)
2016(1)
2018
2015
Operating Statement Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 140,990
$ 38,820
$ 135,375
43,624
$
$ 104,778
$ 32,814
$ 111,081
(1,659)
$
$ 147,998
(3,727)
$
Income from continuing operations . . . . . . . . . . . . . . . .
Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,632
–
$ 39,632
Basic Earnings per Share:
Income from continuing operations . . . . . . . . . . . . . . .
Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . .
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Diluted Earnings per Share:
Income from continuing operations . . . . . . . . . . . . . . . .
Discontinued operations, net-of-tax(2) . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
5.68
–
5.68
5.66
–
5.66
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) . . . .
$ 0.7350
46.83
$
41.54
$
6.966
6.974
7.007
$
$
$
$
$
$
$
$
$
34,785
–
34,785
$ 28,463
1,874
$ 30,337
$
2,956
26,651
$ 29,607
$
2,273
19,711
$ 21,984
5 .02
–
5 .02
5 .00
–
5 .00
$
$
$
$
4 .17
0 .27
4 .44
4 .14
0 .27
4 .41
$
$
$
$
0 .43
3 .91
4 .34
0 .43
3 .89
4 .32
$
$
$
$
0 .32
2 .82
3 .14
0 .32
2 .81
3 .13
0 .6600
33 .90
36 .22
6 .921
6 .924
6 .960
$ 0 .9775
37 .65
$
32 .03
$
6 .852
6 .830
6 .873
$ 1 .0650
90 .55
$
32 .50
$
6 .779
6 .818
6 .854
$ 1 .0450
42 .20
$
29 .42
$
6 .837
7 .001
7 .022
(1) During 2016 and 2017, the Company recorded non-cash impairment charges of $17 .4 million and $1 .0 million, respectively .
(2) On September 29, 2017, the Company spun off its housewares business . The results of operations of the housewares business are reflected as discontinued
operations in the table above .
(3) The 2017 values reflect the effect of the spin-off of the housewares business as a separate public company .
(4) Share amounts in millions .
2019
2018
Year Ended December 31
2017(1)
(In thousands, except employee data)
2016(1)
2015
Balance Sheet Data at December 31:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flow Data:
Provided by operating activities(5) . . . . . . . . . . . . . . . . . .
Used for investing activities(5) . . . . . . . . . . . . . . . . . . . . .
Consolidated Cash Flow before
financing activities (5)(6) . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 122,892
$ 444,773
$ 17,148
$ 289,392
$
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
$ 52,784
(20,262)
$
$
$
54,622
(18,387)
$ 41,305
(15,005)
$
$ 93,935
(9,817)
$
$ 108,002
(8,291)
$
$ 32,522
$
36,235
$ 26,300
$ 84,118
$ 99,711
Provided by (used for) financing activities(5) . . . . . . . .
$
5,113
$
(52,578)
$
(2,306)
$
(55,710)
$ (108,301)
Other Data:
Total employees at December 31(7) . . . . . . . . . . . . . . . . .
2,400
2,400
2,300
3,600
3,600
(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 the housewares business from 2015 to 2016 and the unconsolidated mines for all years presented .
3
2019
2018
Year Ended December 31
2017(1)
(In thousands)
2016(1)
2015
Calculation of Adjusted EBITDA from
continuing operations(8)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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) . . . . .
$ 39,632
–
–
3,767
872
(3,616)
16,240
$ 56,895
$
$
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
(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 interest (income) 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 .
NACCO Industries, Inc.®
TO OUR STOCKHOLDERS
In 2019, NACCO Industries, Inc.®, delivered on its
strategy to grow and diversify. As we continue to build
a strong portfolio of diverse businesses in the mining
and natural resources industries, our objective remains
the same – the creation of long-term shareholder value,
with a focus on taxable investors. We maintained our
focus to relentlessly engage as a trusted partner with
our customers. Our underlying business strengths and
strong balance sheet, combined with our extraordinary
employees and focus on safety and environmental
stewardship, provide the foundation for a strong and
promising future.
It’s About People: Trusted Partners
While our core competency is mining, our business
is about people – our employees, our customers and our
communities. We prioritize safety every day and believe
everyone deserves a safe workplace. We empower our
employees on the journey to zero incidents, and we
maintain a culture of safety by engaging employees
in a shared commitment to operational excellence
4
and safety. Our dedication to safety extends to our
customers and the communities in which we live and
work – we focus on improving safety awareness and
education. The National Mining Association ranks us
as an industry leader, and we are proud that we have
earned more than 100 safety awards at the state and
national levels.
Our employees drive our success. As a service
provider, we know our people are our greatest asset. We
provide development opportunities for our employees,
such as our supervisor-level training programs,
Management Studies Program and Advanced
Management Program, and we actively look for new
ways to grow and develop our employees. As a result,
we enjoy a strong employee retention rate and a high
level of employee engagement.
Our skilled mining experts provide comprehensive mining services, including permitting, mine planning, excavation, load and haul and
reclamation. Shown are mines in Texas and North Dakota (right).
Our customers power our business. We succeed
only when our customers succeed. We work alongside
our customers as partners to understand their business
objectives, forming long-term relationships to deliver
results that strengthen their businesses. As our
Company has grown to include aggregates mining, as
well as minerals management and mitigation resources,
we have continued to focus on long-term partnerships
and delivering results for our customers and the
communities we serve.
to leverage the environmental capabilities developed
in our mining business to provide stream and wetland
mitigation solutions.
Coal Mining Segment
The Coal Mining segment operates surface coal
mines pursuant to a service-based business model for
power generation companies and activated carbon
producers. We have mined coal and other minerals
for 107 years, and mining remains a core skill set.
Together We Build Trusted Partnerships
“We succeed only when our customers succeed .”
5
Our communities inspire us. We engage with
our employees, customers and local communities in
our commitment to environmental stewardship. Our
permitting, mining and reclamation activities utilize
state-of-the-art technology to ensure that activities
comply with, or exceed, legal requirements. We
perform reclamation work concurrently with mining,
and we return land to a productive and natural state.
Since 1978, we have planted over 8.6 million trees as
part of our reclamation activities, and we have received
over 90 federal and state awards for successful and
innovative reclamation projects.
Diversifying Our Services:
Integrated Solutions
We have a proud legacy and a promising future.
In 2012 and 2017, respectively, we successfully spun
off our materials handling and housewares businesses,
both of which resulted from earlier diversification
and growth strategies within NACCO. After these
spin-offs, NACCO returned its focus to its mining
and natural resources business and to growth through
diversification. Since 2015, we have pursued growth
opportunities that leverage our core competencies. As
our growth strategy progressed in 2019, we changed
our segment reporting, which provides investors a
clearer understanding of our business. As of January 1,
2019, the Company’s operating segments are: (i) Coal
Mining, (ii) North American Mining (NAMining) and
(iii) Minerals Management. In addition, we continue
Today, we operate nine surface coal mines, which
delivered 34.6 million tons of coal in 2019, primarily
under long-term contracts that generate relatively
predictable earnings and strong cash flow. Coal is
surface mined in North Dakota, Texas, Mississippi,
Louisiana and the Navajo Nation in New Mexico, and
delivered to customer facilities that are adjacent to, or
near, our mines.
We employ a somewhat unique contract structure
at eight of our nine coal mines. Customers pay us a
contractually agreed management fee per ton of coal
or heating unit (MMBtu) delivered to their facilities.
Under these management fee 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.
This contract structure eliminates exposure to spot
coal market price fluctuations while providing steady
income and cash flow with minimal capital investment.
Mississippi Lignite Mining Company (MLMC) is
our one coal mining operation that operates pursuant
to a more traditional approach. MLMC delivers coal
to a power plant adjacent to the mine under a contract
that runs through 2032. The mine provides 100% of
the fuel for this power plant. The MLMC contract
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
NACCO Industries, Inc.® will require significant capital spending over the
next several years as it moves to a new mine area.
The contractual price received for coal sales adjusts
monthly, primarily based on changes in the levels of
established indices that reflect general U.S. inflation
natural gas prices, limited growth in electricity demand
and increasing competition from renewable energy.
U.S. coal-fired power generation has contracted in
recent years, and we recognize that the power plants
we serve could close prematurely or produce less
Together We Create Integrated Solutions
“We relentlessly engage as a trusted partner with our customers
to create integrated solutions and deliver results .”
rates, including for typical mining cost components
such as labor and diesel fuel. Profitability at MLMC is
affected by three key factors – customer demand for
coal, changes in the indices that determine the coal
sales price and actual costs incurred.
Recent market trends indicate a reduction in
electricity generated from coal due to historically low
power. We are responding by sharpening our focus
and strengthening our efforts to create value for our
customers, working closely with them to strengthen the
resiliency of their power plants. A continuous focus to
drive down production costs and maximize efficiency
and operating capacity at each mine benefits both
the Company and our customers, as fuel cost is the
6
Bisti Fuels Company: Demonstrated Excellence. North American Coal’s Bisti Fuels Company continues to partner with the Navajo Transitional
Energy Company in New Mexico to develop solutions and deliver results. Since assuming its operational role in 2017, Bisti Fuels has received the
following awards: Sentinels of Safety Large Coal Processing Award (National Mining Association); Excellence in Surface Coal Mining Reclamation
Award (Office of Surface Mining Reclamation & Enforcement (OSMRE)); and Excellence in Reclamation Award (New Mexico Energy, Minerals and
Natural Resources Department), for STEM related outreach and education. They have also received the Good Neighbor Award (OSMRE), and
will be receiving the Community Outreach Award (Interstate Mining Compact Commission).
major driver for economic power plant dispatch. We
are encouraged that many of our customers continue
to invest in efficiency and environmental upgrades to
their facilities. 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, and are competitive
suppliers of electricity in their respective dispatch areas.
During the last 10 years, we have built five new coal
mines and assumed the operation of an existing coal
mine for a new customer, a significant accomplishment
in a changing industry. While the development of new
coal-fired power plants is likely to be limited, growth
could come by assuming operation of existing mines,
as we did at the Navajo Mine in New Mexico.
North American Mining Segment
NAMining focuses on mining materials other
than coal – primarily limestone, as well as sand and,
soon, lithium. NAMining leverages our historical
mining experience and service-based business model
to create value for its customers by improving mining
productivity and efficiencies. Our contract mining
services provide dependable production, optimized
quality of delivered material and controlled costs.
NAMining has begun expanding beyond its
current concentration in the southeastern United
States. As an important accomplishment in that
pursuit, NAMining has been selected as the exclusive
miner for Lithium Americas’ Thacker Pass lithium
project in Nevada. Lithium Nevada is in the process of
securing permits and currently expects to commence
construction in 2021, with production of lithium
products expected to begin in 2023. NAMining,
through a new subsidiary, Sawtooth Mining, entered
into a mining agreement to mine lithium, which
provides that Lithium Nevada will reimburse Sawtooth
Mining for its operating and mine reclamation costs
and pay Sawtooth Mining a management fee based on
deliveries during the 20-year contract term. Sawtooth
Mining will provide comprehensive mining services,
with responsibility for all operational aspects of the
lithium mine, similar to our typical scope of work at
management-fee mines in the Coal Mining segment.
In addition to the Thacker Pass project, NAMining
has grown from serving two customers at seven
quarries utilizing 10 draglines in 2015 to serving
10 customers at 20 quarries utilizing 30 draglines
and a rope shovel as of December 31, 2019. During
2019, NAMining executed a 20-year mining services
agreement to serve a new customer’s cement plant in
Florida. As part of this mining services agreement,
NAMining is responsible for the relocation and
refurbishment of a dragline. This dragline is expected
to be in place and operating in the second half of 2020.
In keeping with the fundamental principles that guide
our other businesses, a focus on long-term customer
relationships and success guides NAMining as a critical
core value.
7
NAMining leverages our historical mining excellence and service-
based business model to create value for customers by improving
mining productivity and efficiencies.
We continue to expand the scope of our business
development activities to grow NAMining beyond
aggregates and lithium. We are focused on delivering
mining services where our core skills can provide
value. We believe significant opportunities exist to
provide comprehensive mining services, similar to
what we will do for Lithium Americas, and to expand
our range of contract mining services, whether with a
dragline, truck/shovel fleet or other specialized mining
equipment. Importantly, our mining skills are well-
suited to mine a range of minerals, such as phosphate,
rare earths and others. Continued growth can lead
to increased profitability as we have established the
administrative infrastructure to support scalability in
this business.
NACCO Industries, Inc.® Minerals Management
The Minerals Management segment promotes the
development of our natural gas, and to a lesser extent,
oil, natural gas liquids and coal reserves, generating
income primarily from royalty-based lease payments
from third parties. We have worked in previous
years to protect our mineral interests, primarily in
Ohio’s Utica and Marcellus shale regions, and we
now are benefiting from those efforts. Significant
royalty income, was driven by the recent completion of
several major interstate pipelines which allowed billions
more cubic feet of gas per day to reach markets outside
of Appalachia. Production from newly developed
natural gas wells can decrease quickly due to changes in
initial pressure, before settling into a more stable, long-
term production profile, in keeping with the production
decline curves that are typical to these types of wells.
Because we lease our reserves to others, the Minerals
Together We Deliver Results
“We have charted a future based on growth and diversification .”
infrastructure developments over the past several years,
such as new natural gas pipelines supporting Ohio’s
shale energy sector and ongoing investment in new
petrochemical processing facilities along the Ohio
River, have increased our opportunities to monetize
our Ohio assets. Minerals Management’s income grew
significantly in 2019 compared with prior periods,
primarily due to an increase in the number and
productivity of wells operated by third parties to extract
natural gas from our mineral reserves in Ohio. This
increase in production, and subsequent increase in our
8
Our Minerals Management segment promotes the development of
our natural gas, and to a lesser extent, oil, natural gas liquids and
coal reserves. Our initial growth focus will be on smaller, diversifying
acquisitions of mineral reserves with near-term cash flow yields.
Management business does not bear ordinary operating
costs, resulting in favorable returns for this business.
As the majority of our Ohio mineral reserves are
currently under lease, we have shifted our focus to
growing and diversifying this segment. We established
Catapult Mineral Partners and made two strategic
hires from within the oil and gas industry to grow this
part of our business. We believe our strong balance
sheet gives us a considerable advantage to fund the
growth of the Minerals Management segment, as we
begin to selectively acquire mineral interests at a time
when financially stressed industry participants are
sellers. Our initial focus will be on smaller, diversifying
acquisitions of mineral reserves with near-term cash
flow yields.
Mitigation Resources of North America®
Mitigation Resources of North America
(Mitigation Resources) is another example of how we
are leveraging our core competencies to create new
platforms for diversified and strategic growth. Many
of our mines have been recognized for the quality of
their environmental work to restore disturbed streams,
wetlands or habitats, as well as effective reclamation
plans that enhance post-mining use of former mine
areas. Our extensive reclamation work has given us
substantial knowledge and skills that are well-suited
for restoration projects, including a strong team of
in-house experts. We have leveraged those skills and
capabilities into a newly formed business to provide
mitigation services.
9
Mitigation Resources: Leveraging Core Competencies. Mitigation Resources of North America is currently developing five mitigation banks in
three states. The experts at Mitigation Resources identify and secure sites with impaired streams, wetlands or species habitats and restore, enhance
and preserve them.
Our Mitigation Resources team identifies and
secures sites with impaired streams, wetlands or
species habitats and restores, enhances and preserves
them, creating mitigation credits that can be sold to
offset disturbances of nearby streams, wetlands and/or
habitats. This process is known as mitigation banking.
In addition to acquiring land to develop a mitigation
bank, Mitigation Resources also partners with land-
owners to develop mitigation banks on their land, with
the landowner sharing in the profits when credits are
sold. This partnership model reduces our invested
capital while allowing us to generate income related
to the application of our core skills.
Our Mitigation Resources experts also provide
services to those engaged in permittee-responsible
stream and wetland mitigation. Under the permittee-
responsible mitigation model, we provide services to
landowners who prefer to conduct mitigation activities
on their own land, rather than purchase credits from
a mitigation bank.
We are committed to finding mitigation solutions
that maximize success for our customers and partners.
A variety of factors contribute to the success of
a mitigation project. We believe our experience
integrating reclamation into our mine plans, as well
as our good working relationship with the US Army
Corps of Engineers, which oversees mitigation banks,
positions us for future success. Mitigation Resources
currently has projects in Mississippi, Alabama and
Tennessee, and is positioned for additional growth.
We are optimistic that Mitigation Resources of
North America can grow to be a sizeable business
in the future.
Liquidity and Results
Our results for 2019 were mixed, with an overall
reduction in operating profit but an increase in net
income over 2018. A reduction in operating profit
in the Coal Mining and NAMining segments was
partly offset by an increase in Minerals Management’s
operating profit. In the Coal Mining segment, the
reduction in operating profit was driven by an
unfavorable mine reclamation obligation adjustment
and a decrease in tons delivered in 2019 compared with
record deliveries in 2018. In the NAMining segment,
an increase in expenses offset contributions from new
limestone mining contracts. The increase in expenses
was due in part to investments in infrastructure and
people to support future growth. The increase in
operating profit in the Minerals Management segment
was primarily because of a significant increase in
the number of gas wells operated by third parties to
extract natural gas from the Company’s Ohio Utica
shale mineral reserves. Despite the overall reduction
NACCO Industries, Inc.® in operating profit, an increase in other income and
certain tax benefits in 2019 resulted in an increase in
the Company’s net income over 2018.
NACCO ended the year with $122.9 million
of cash and $24.9 million of debt. Cash flow before
financing was $32.5 million. We expect to utilize cash
generated in the next several years to fund capital
expenditures for existing businesses, primarily moving
to a new mine area at Mississippi Lignite Mining
Company, as well as to support initiatives to grow
and diversify. We intend to continue to maintain a
conservative leverage ratio because high leverage
introduces risks that are inconsistent with our long-
term strategy. While we maintain a disciplined
approach to investing capital, we also continue to
return cash to stockholders through dividends and
share repurchases.
What We Do: Powerful Results
Over the past 107 years, our Company has faced
constant change. Today is no different. We have charted
a future based on growth and diversification. We will
succeed by making investments today that allow for
diversification in areas where we have the strengths,
skills and core competencies to ensure NACCO’s
continued success. We will do so while maintaining
our steadfast commitment to our existing customers
to maintain the highest levels of customer service and
operational excellence, with an unwavering focus on
safety and environmental stewardship.
Our efforts remain focused on increasing
NAMining’s customer base, making accretive Minerals
Management investments and securing profitable
mitigation opportunities for Mitigation Resources of
North America. We are committed to maintaining
a conservative capital structure while we grow and
diversify without unnecessary risk. Ultimately,
diversified strategic growth is the key to increasing free
cash flow available for continued re-investment in and
expansion of our businesses.
More than ever, our people differentiate us from
our competitors.
I would like to thank David Williams for his
service on our board of directors over the last several
10
Coyote Creek Mine near Beulah, North Dakota.
We have charted a future based on growth and diversification.
We will succeed by making investments today that will allow for
diversification in areas where we have strengths, skills and core
competencies.
years. David joined our board in 2012 and has been a
reliable contributor to the development of our strategies
by helping us ask the right questions as we considered
opportunities.
I would also like to welcome Roger Rankin to our
board of directors. Roger has a very long relationship
with the Company and has served on the North
American Coal subsidiary board since 1991. Roger
brings experience as a long-time student of the energy
industry and as a private investor. As the grandson of
Frank E. Taplin, Sr., the Company’s founder, Roger also
has the perspective of a long-term stockholder.
Most importantly, I want to thank our employees
for their many contributions to our success and
for being trusted partners with our customers
and communities. I would also like to thank our
customers and vendors, as well as NACCO’s long-
term stockholders, for their continuing support. I am
confident that our strategic diversification plans and
our disciplined approach to capital management will
continue to build long-term shareholder value for many
years to come. We are dedicated to creating integrated
solutions that deliver powerful results.
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 44 in the attached Form 10-K.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
5875 Landerbrook Drive, Suite 220, Cleveland, Ohio
(Address of principal executive offices)
34-1505819
(I.R.S. Employer Identification No.)
44124-4069
(Zip Code)
Registrant's telephone number, including area code: (440) 229-5151
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Stock, $1 par value per share
NC
New York Stock Exchange
Class B Common Stock is not publicly listed for trade on any exchange or market system; however, Class B Common Stock is convertible into Class A
Common Stock on a share-for-share basis.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
NO
YES
NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES
NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
Accelerated filer
Non-accelerated filer
Smaller reporting
company
Emerging growth
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
YES
NO
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2019 (the last business day of the
registrant's most recently completed second fiscal quarter): $221,449,254
Number of shares of Class A Common Stock outstanding at February 21, 2020: 5,397,458
Number of shares of Class B Common Stock outstanding at February 21, 2020: 1,568,670
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its 2020 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.
NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
Item 1.
BUSINESS
Item 1A. RISK FACTORS
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
PROPERTIES
Item 3.
LEGAL PROCEEDINGS
Item 4. MINE SAFETY DISCLOSURES
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Item 6.
SELECTED FINANCIAL DATA
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I.
PART II.
PART III.
PART IV.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
1
21
28
28
28
28
29
29
30
44
44
44
44
45
46
46
46
46
46
47
53
F-1
Item 1. BUSINESS
PART I
General
NACCO Industries, Inc.® (“NACCO” or the “parent company”) is the public holding company for The North American Coal
Corporation® ("NACoal"). NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a
holding company structure for a predecessor corporation organized in 1913. The Company and its wholly-owned subsidiaries
(collectively, "NACCO Industries, Inc. and Subsidiaries" or the "Company") operate in the mining and natural resources
industries through three operating segments: Coal Mining, North American Mining ("NAMining") and Minerals Management.
The Coal Mining segment operates surface coal mines under long-term contracts with power generation companies and
activated carbon producers pursuant to a service-based business model. The NAMining segment provides value-added contract
mining and other services for producers of aggregates, lithium and other minerals. The Minerals Management segment
promotes the development of the Company’s oil, gas and coal reserves, generating income primarily from royalty-based lease
payments from third parties.
The Company also has costs not directly attributable to a reportable segment which are not included as part of the measurement
of segment operating profit, primarily administrative costs related to public company reporting requirements, the financial
results of the Company’s mitigation banking business, Mitigation Resources of North America® (“MRNA”), and Bellaire
Corporation (“Bellaire”). MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and
provides services to those engaged in permittee-responsible stream and wetland mitigation. Bellaire manages the Company’s
long-term liabilities related to former Eastern U.S. underground mining activities.
Included within other income is the financial results of NoDak Energy Services, LLC ("NoDak"). NoDak operates and
maintains a coal drying system at a customer’s power plant. The NoDak contract expired in the first quarter of 2020.
The following map shows our current operations:
1
Business Developments
In 2019, NAMining, through a new subsidiary, Sawtooth Mining, entered into a mining agreement to serve as exclusive
contract miner for the Thacker Pass lithium project in northern Nevada. The Thacker Pass Project is 100% owned by Lithium
Nevada Corp. Lithium Nevada plans to develop a lithium production facility near what is believed to be the largest known
lithium deposit in the United States. Sawtooth Mining will provide comprehensive mining services similar to the Company's
typical scope of work in the Coal Mining segment. The mining agreement provides that Lithium Nevada will reimburse
Sawtooth Mining for its operating and mine reclamation costs, and pay Sawtooth Mining a management fee per metric ton of
lithium delivered during the 20-year contract term. Lithium Nevada is in the process of securing permits and currently expects
to commence construction in 2021 and production of lithium products in 2023.
During the development of the project, Sawtooth Mining will provide Lithium Nevada $3.5 million in cash, of which $1.5
million has been provided as of December 31, 2019, to assist in project development. Sawtooth Mining will also provide
certain engineering services related primarily to mine design and permitting. Under the terms of the mining agreement, Lithium
Nevada will pay Sawtooth Mining a success fee upon achievement of certain engineering, construction and production
milestones. After Lithium Nevada secures required permits and financing for the project, Sawtooth Mining intends to acquire
up to $50 million of mining equipment. The cost of this mining equipment will be reimbursed to Sawtooth Mining by Lithium
Nevada over a six-year period from the equipment acquisition date.
NAMining serves as a platform for pursuing non-coal mining projects by leveraging the Company's core mining capabilities.
In addition to the Thacker Pass Project, NAMining has grown from serving two customers at seven quarries utilizing 10
draglines in 2015 to serving 10 customers at 20 quarries utilizing 31 draglines and a rope shovel during 2019.
On September 29, 2017, the Company spun-off Hamilton Beach Brands Holding Company ("HBBHC"), a former wholly
owned subsidiary. As a result of the spin-off, NACCO stockholders received one share of HBBHC Class A common stock and
one share of HBBHC Class B common stock for each share of NACCO Class A or Class B common stock owned on the record
date for the spin-off.
On June 28, 2017, Southern Company and its subsidiary, Mississippi Power, suspended operations involving the coal gasifier
portion of the Kemper County energy facility. Liberty Fuels Company, LLC ("Liberty") was the sole supplier of coal to fuel the
gasifier under its contract with Mississippi Power. Liberty ceased all mining and delivery of lignite in 2017. The terms of the
contract specified that Mississippi Power was responsible for all mine closure costs and Liberty receives compensation for
providing mine reclamation services. As of December 31, 2019, the mine areas have been reclaimed and final mine reclamation
activities, primarily monitoring, will continue until final bond release.
Bisti Fuels LLC (“Bisti”) became the contract miner at Navajo Transitional Energy Company's ("NTEC's") existing Navajo
Mine on January 1, 2017. Under the 15 year Contract Mining Agreement, the Company is reimbursed for actual costs incurred
and is paid a management fee per MMBtu delivered.
Segments
Operating segments are defined as components of an enterprise for which separate financial information is available that is
evaluated regularly by the chief operating decision maker to decide how to allocate resources and to assess performance. In the
first quarter of 2019, the Company changed its reportable segments to reflect changes in the business, including growth at
NAMining and Minerals Management. As of January 1, 2019, the Company’s operating segments are: (i) Coal Mining, (ii)
NAMining and (iii) Minerals Management. While the Company continues to pursue opportunities to add new coal mining
operations to the Coal Mining segment, the NAMining segment will serve as the platform for pursuing non-coal mining
projects and the Minerals Management segment will work to capitalize on the Company’s oil, gas and coal reserves.
Additional information relating to financial and operating data on a segment basis (including unallocated items) is set forth
under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part
II of this Form 10-K and in Note 15 to the Consolidated Financial Statements contained in this Form 10-K.
Coal Mining Segment
The Coal Mining segment operates surface coal mines under long-term contracts with power generation companies and
activated carbon producers pursuant to a service-based business model. Coal is surface-mined in North Dakota, Texas,
Mississippi, Louisiana and on the Navajo Nation in New Mexico. Each mine is fully integrated with its customer operations.
The operating coal mines are: Bisti, Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC
(“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”),
Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Mississippi Lignite Mining
Company (“MLMC”) and The Sabine Mining Company (“Sabine”). Liberty is also included in the Coal Mining segment.
2
Coteau, Coyote, Falkirk, MLMC and Sabine supply lignite coal for power generation. Bisti and Camino Real supply sub-
bituminous and bituminous coal, respectively, for power generation. Caddo Creek and Demery supply lignite coal for the
production of activated carbon. Each of these mines deliver their coal production to adjacent or nearby power plants, synfuels
plants or activated carbon processing facilities under long-term supply contracts. With the exception of Camino Real, each
mine is the exclusive supplier of coal to its customers' facilities. Camino Real’s customer takes all coal produced by the mine
but also purchases additional coal from other suppliers.
This segment has a strong history of customer retention due to the long-term nature of its contracts and the proximity of the
Company’s mines to its customers’ facilities. With the exception of Camino Real, whose contract expires in 2021 but has
renewal provisions, other contract expiration dates range from 2022 through 2045. The contract that expires in 2022 may be
extended for three additional periods of five years each, or until 2037, at the Company’s option.
At all operating coal mines other than MLMC, the Company 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. The customers are responsible for funding all mine operating costs, including final mine
reclamation, and directly or indirectly provide all of the capital required to build and operate the mine. This contract structure
eliminates exposure to spot coal market price fluctuations while providing steady income and cash flow with minimal capital
investment. Other than at Coyote Creek, debt financing provided by or supported by the customers is without recourse to
NACCO and NACoal. See Note 17 to the Consolidated Financial Statements in this Form 10-K for further discussion of
Coyote Creek's guarantees.
All operating coal mines other than MLMC meet the definition of a variable interest entity (“VIE”). In each case, NACCO is
not the primary beneficiary of the VIE as it does not exercise financial control; therefore, NACCO does not consolidate the
results of these operations within its financial statements. Instead, these contracts are accounted for as equity method
investments. The income before income taxes associated with these VIE's is reported as Earnings of unconsolidated operations
on the Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in
Unconsolidated Subsidiaries in the Consolidated Balance Sheets. The mines that meet the definition of a VIE are referred to
collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the
NACCO consolidated U.S. tax return; therefore, the income tax expense line on the Consolidated Statements of Operations
includes income taxes related to these entities. The contracts for certain of the Company's Unconsolidated Subsidiaries permit
or obligate the customer under some conditions to acquire the assets or stock of the subsidiary for an amount roughly equal to
book value.
The MLMC contract is the only operating coal contract in which the Company is responsible for all operating costs, capital
requirements and final mine reclamation; therefore, MLMC is consolidated within NACCO’s financial statements. MLMC sells
coal to its customer at a contractually agreed-upon price which adjusts monthly, primarily based on changes in the level of
established indices which reflect general U.S. inflation rates. Profitability at MLMC is affected by customer demand for coal,
changes in the indices that determine sales price and actual costs incurred. As diesel fuel is heavily weighted among the indices
used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.
MLMC delivers coal to the Red Hills Power Plant in Ackerman, Mississippi. The Red Hills Power Plant supplies electricity to
the Tennessee Valley Authority ("TVA") under a long-term Power Purchase Agreement ("PPA"). MLMC’s contract with its
customer runs through 2032. TVA’s power portfolio includes coal, nuclear, hydroelectric, natural gas and renewables. The
decision of which power plants to dispatch is determined by TVA.
Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015. Since 2015, the
Company has sold or transferred certain Centennial equipment and mineral reserves. The Company continues to evaluate
strategies for the remaining mineral reserves and a dragline, which have no remaining book value. Cash expenditures related to
mine reclamation at Centennial will continue until mine reclamation is complete, or ownership of, or responsibility for, the
remaining mines is transferred. Centennial is a consolidated entity within the Coal Mining segment as the Company is
responsible for carrying costs and final mine reclamation.
The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial are owned or controlled by the Company. The coal
reserves at all other mines are owned or controlled by the respective mine’s customer. Total coal reserves approximate 2.0
billion tons (including the unconsolidated coal mining subsidiaries), with approximately 1.1 billion tons committed to
customers pursuant to long-term contracts.
3
The Company performs contemporaneous reclamation activities at each mine in the normal course of operations. Under all of
the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities. Under
certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation
activities. To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those
services in addition to receiving reimbursement from customers for costs incurred.
The contracts under which certain of the Unconsolidated Subsidiaries operate provide that, under certain conditions, including
default, the customer(s) involved may elect or be obligated to acquire the assets (subject to the liabilities) or the capital stock of
the Coal Mining subsidiary for an amount effectively equal to book value. The Company does not know of any conditions of
default that currently exist.
North American Mining Segment
The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and
other minerals. The segment is a primary platform for the Company’s growth and diversification outside of the coal industry.
NAMining provides contract mining services for independently owned mines and quarries, creating value for its customers by
performing the mining aspects of its customers’ operations. This allows customers to focus on their areas of expertise: materials
handling and processing, product sales and distribution. NAMining operates primarily at limestone quarries in Florida, but is
focused on expanding outside of Florida and into mining materials other than limestone. During 2019, the Company entered
into a mining agreement to serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.
NAMining utilizes both fixed price and management fee contract structures.
Minerals Management Segment
The Minerals Management segment promotes the development of the Company’s oil, gas and coal reserves, generating income
primarily from royalty-based lease payments from third parties. The Company’s gas, oil and undeveloped coal reserves are
located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas),
Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal and coalbed methane
and natural gas) and North Dakota (coal).
The majority of the Company’s existing reserves were acquired as part of its historical coal mining operations. The Minerals
Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to
explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a
lesser extent, oil and coal. Specialized employees in the Minerals Management segment also provide surface and mineral
acquisition and lease maintenance services related to Company operations.
Customers
The principal customers of the Coal Mining segment are electric utilities, an independent power provider and producers of
activated carbon.
The principal customers of the NAMining segment are limestone producers. In addition, NAMining will serve as exclusive
contract miner for the Thacker Pass lithium project in northern Nevada.
The Minerals Management segment generates income primarily from royalty-based lease payments from oil, gas and coal
producers.
In 2019, two customers and an oil and gas lessee individually accounted for more than 10% of consolidated revenue. In 2018
and 2017, two customers individually accounted for more than 10% of consolidated revenue. The following represents the
revenue attributable to each of these entities as a percentage of consolidated revenue for those years:
Customer
Choctaw Generation Limited Partnership, LLLP
Segment
Coal Mining
CEMEX
Ascent Resources
NAMining
Minerals Management
Percentage of Consolidated Revenue
2018
2017
2019
48%
21%
12%
60%
20%
n/a
60%
18%
n/a
The loss of either of these customers or the lessee could have a material adverse effect on the results of operations attributable
to the applicable segment and on the Company's consolidated results of operations.
4
In addition to the customers listed above, the Company has certain subsidiaries that meet the definition of a VIE. NACCO is
not the primary beneficiary of the VIE as it does not exercise financial control; therefore, NACCO does not consolidate the
results of these operations within its financial statements. Instead, these contracts are accounted for as equity method
investments. For the year ended December 31, 2019, the Coal Mining segment derived approximately 60% of the Earnings of
Unconsolidated Operations from two customers, Basin Electric Power Cooperative and Great River Energy. The loss of either
of these contracts could have a material adverse effect on the Earnings of Unconsolidated Operations of the Coal Mining
segment and a material adverse effect on the Company's consolidated results of operations.
Competition
The Company has a strong history of customer retention due to the long-term nature of its contracts and the proximity of the
Company’s coal mines to its customers’ facilities. The coal mines are directly adjacent to the customer’s property, with
economical delivery methods that include conveyor belt delivery systems linked to the customer’s facilities or short-haul rail
systems. All of the mines in the Coal Mining segment are the most economical suppliers to each of their respective customers
as a result of transportation advantages over competitors. In addition, the customers' facilities were specifically designed to use
the coal being mined.
The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric power and nuclear power. In
addition, it competes with subsidized sources of energy, primarily wind and solar. Among the factors that affect competition are
the price and availability of oil and natural gas, environmental and related political considerations, the time and expenditures
required to develop new energy sources, the cost of transportation, the cost of compliance with governmental regulations, the
impact of federal and state energy policies, the impact of subsidies on renewable pricing and the Company's customers'
dispatch decisions, which may take into account carbon dioxide emissions. The ability of the Coal Mining Segment to maintain
comparable levels of coal production at existing facilities and to market and develop its reserves will depend upon the
interaction of these factors.
Electricity generating units are chosen to run primarily based on operating costs, of which fuel costs account for the largest
share. Sustained low natural gas prices have resulted in an increase in electricity generated from natural gas leading to a decline
in the use of coal-fired capacity in the United States. Natural gas-fired power plants have the most potential to continue to
displace coal-fired electric baseload power generation in the near term. There also continues to be an increase in the amount of
electricity generated by wind and solar. As an example, the Company estimates wind capacity in North Dakota has increased
over 60% since 2015 to approximately 3,600 megawatts and wind developers have expressed an interest in building more than
7,000 megawatts of additional wind generation in North Dakota over the next several years. Federal and state mandates for
increased use of electricity derived from renewable energy sources have also negatively affected demand for coal. Such
mandates, combined with other incentives to use renewable energy sources, such as tax credits, make alternative fuel sources
competitive with coal. The power plants the Coal Mining segment supplies are generally younger and more efficient, with
better environmental controls than most plants that have closed in recent years. The Coal Mining segment's customers continue
to invest in efficiency and environmental upgrades to their facilities. Because the Coal Mining segment's customers’ power
plants are competitive suppliers of electricity in their respective dispatch areas, the Company considers its surface coal mining
operations to be well positioned relative to most other mines servicing coal-fired generating units.
Based on industry information, the Company believes it was one of the ten largest coal producers in the U.S. in 2019 based on
total coal tons produced.
NAMining faces competition, primarily from aggregates producers which choose to self-perform mining operations.
Seasonality
The Company has experienced limited variability in its results due to the effect of seasonality; however, variations in coal
demand can occur as a result of the timing and duration of planned or unplanned outages at customers' facilities. Variations in
coal demand can also occur as a result of changes in market prices of competing fuels such as natural gas, wind and solar
power and demand for electricity, which can fluctuate based on changes in weather patterns. The NAMining segment extracts a
significant amount of the annual limestone produced in Florida. The Florida construction industry can be affected by the
cyclicality of the economy and seasonal weather conditions, both of which can result in variations in limestone demand. The
Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company
based on their sale of natural gas and, to a lesser extent, oil and coal, extracted primarily by third parties. Natural gas wells have
high initial production rates and follow a natural decline before settling into relatively stable, long-term production. Decline
rates can vary due to factors like well depth, well length, formation pressure, and facility design. In addition to the natural
production decline curve, royalty income can fluctuate favorably or unfavorably in response to a number of factors outside of
the Company's control, including the number of wells being operated by third parties, fluctuations in commodity prices
(primarily natural gas), fluctuations in production rates associated with operator decisions, regulatory risks, the Company's
5
lessees' willingness and ability to incur well-development and other operating costs, and changes in the availability and
continuing development of infrastructure.
Employees
As of December 31, 2019, the Company and its subsidiaries had approximately 2,400 employees, including approximately
2,000 employees at the Company’s unconsolidated mining operations of which 282 are represented by a union at Bisti.
NACCO believes its current labor relations with both union and non-union employees are satisfactory.
Available Information
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any
amendments to those reports available, free of charge, through its website, www.nacco.com, as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The content
of the Company's website is not incorporated by reference into this Form 10-K or in any other report or document filed with the
SEC, and any reference to the Company's website is intended to be inactive textual references only.
Under Rule 12b-2 of the Exchange Act, the Company qualifies as a “smaller reporting company” because its public float as of
the last business day of the Company’s most recently completed second quarter was less than $250 million. For as long as the
Company remains a “smaller reporting company,” it may take advantage of certain exemptions from the SEC’s reporting
requirements that are otherwise applicable to public companies that are not smaller reporting companies.
6
The location, mine type, reserve data, coal quality characteristics, sales tonnage and contract expiration date for the Coal
Mining segment were as follows:
COAL MINING OPERATIONS ON AN “AS RECEIVED” BASIS
2019
2018
Proven and Probable Reserves (a)(b)
Committed
Under
Contract
Uncommitted
Total
(Millions of Tons)
Tons
Delivered
(Millions)
Owned
Reserves
(%)
Leased
Reserves
(%)
Total
Committed
and
Uncommitted
(Millions of
Tons)
Tons
Delivered
(Millions)
Contract
Expires
Mine/Reserve
Unconsolidated Mines
Freedom Mine (c)-
The Coteau Properties Company
Falkirk Mine (c)-
The Falkirk Mining Company
South Hallsville No. 1 Mine (c)(e)-
The Sabine Mining Company
Five Forks Mine (c)(e)-
Demery Resources Company, LLC
Marshall Mine (c)(e)-
Caddo Creek Resources Company,
LLC
Type of
Mine
Surface
Lignite
Surface
Lignite
Surface
Lignite
Surface
Lignite
Surface
Lignite
Eagle Pass Mine (c)(e)-
Camino Real Fuels, LLC
Surface
Bituminous
Coyote Creek Mine (c)-
Coyote Creek Mining Company,
LLC
Navajo Mine (c)(f)- Bisti Fuels
Company
Consolidated Mines
Red Hills Mine-
Mississippi Lignite Mining
Company
Centennial Natural Resources
Total Developed
Undeveloped Mines
Surface
Lignite
Surface
Sub-
bituminous
Surface
Lignite
Surface
Bituminous
North Dakota
Texas
Eastern (h)
Mississippi
Total Undeveloped
432.8
375.7
63.1
4.9
5.8
3.8
69.6
(f)
432.8
13.5
—
—
375.7
39.5
102.6
—
4.9
13.4
19.2
11.8
15.6
—
69.6
(f)
(f)
106.0
134.0
240.0
—
1,061.7
43.0
43.0
241.7
1,303.4
—
—
—
—
—
243.9
222.5
41.0
188.2
695.6
243.9
222.5
41.0
188.2
695.6
7.4
2.6
0.1
0.2
1.5
1.7
5.0
2.6
—
34.6
—
—
—
—
—
3 %
1 %
(e)
(e)
(e)
(e)
97%
99%
(e)
(e)
(e)
(e)
444.5
14.2
2022 (d)
373.6
8.4
2045
(e)
(e)
(e)
(e)
3.8
2035
0.2
2030
0.2
2044
2.1
2021
0 %
100%
72.2
2.5
2040
(f)
(f)
(f)
4.1
2031
44 %
40 %
56%
60%
100%
100%
100%
100%
231.3
3.0
2032
50.0
1,171.6
(g)
—
38.5
.
—
—
—
—
—
243.7
222.5
41.0
187.8
695.0
1,866.6
Total Developed/Undeveloped
1,061.7
937.3
1,999.0
7
Mine/Reserve
Unconsolidated Mines
Freedom Mine (c)-
The Coteau Properties Company
Falkirk Mine (c)-
The Falkirk Mining Company
South Hallsville No. 1 Mine (c)(e)-
The Sabine Mining Company
Five Forks Mine (c)(e)-
Demery Resources Company, LLC
Marshall Mine (c)(e)-
Caddo Creek Resources Company,
LLC
Eagle Pass Mine (c)(e)-
Camino Real Fuels, LLC
Coyote Creek Mine (c)-
Coyote Creek Mining Company, LLC
Navajo Mine (c)(f)- Bisti Fuels
Company
Consolidated Mines
Type of Mine
Coal Formation or
Coal Seam(s)
Average
Seam
Thickness
(feet)
Average
Depth (feet)
BTUs/lb
Sulfur
(%)
Ash
(%)
Moisture
(%)
Average Coal Quality (As received)
Surface Lignite
Beulah-Zap Seam
Surface Lignite
Hagel A&B, Tavis
Creek Seams
Surface Lignite
Wilcox Formation
Surface Lignite
Wilcox Formation I
Seam
Surface Lignite
Surface
Bituminous
Wilcox Formation A
Seam
Olmos Formation
Surface Lignite
Beulah-Zap Seam
Surface
Sub-
bituminous
(f)
18
8
2.7
4.5
3.1
5.5
10
(f)
130
6,700
0.90%
9%
6,200
0.62%
11%
6,453
1.29%
16.6%
6,940
0.44%
8.8%
7,152
0.54%
9.17%
6,700
1.00%
40%
6,900
0.98%
8%
90
94
45
62
50
95
(f)
36%
38%
33%
37%
34%
11%
36%
(f)
(f)
(f)
(f)
Red Hills Mine-
Mississippi Lignite Mining Company
Surface Lignite
Centennial Natural Resources
Undeveloped Mines
Surface
Bituminous
C, D, E, F, G, H
Seams
Black Creek, New
Castle, Mary Lee,
Jefferson, American,
Nickel Plate, Pratt
Seams
3.6
150
5,200
0.60%
14%
43%
1.75
178
13,226
2.00%
10%
4%
North Dakota
Texas
Eastern
Mississippi
— Fort Union Formation
—
—
—
Wilcox Formation
Freeport & Kittanning
Seams
Wilcox Formation
13
5
4
5
130
120
400
130
6,500
6,800
12,070
5,200
0.8%
1.0%
3.3%
0.6%
8%
16%
12%
13%
38%
30%
3%
44%
(a)
(b)
(c)
(d)
(e)
Committed and uncommitted tons represent in-place estimates. The projected extraction loss is approximately 10% of the proven and probable
reserves, except with respect to the Eastern Undeveloped Mines, in which case the projected extraction loss is approximately 50% of the proven and
probable reserves.
The Company's reserve estimates are generally based on the entire drill hole database for each reserve, which was used to develop a geologic
computer model using triangulation methods and inverse distance to the second power as an interpolator for NACCO's reserves. As such, all
reserves are considered proven (measured) within the Company's reserve estimate. None of the Company's coal reserves have been reviewed by
independent experts. The Company’s estimate of the economic viability of the proven and probable reserve estimates for tons committed to
customers pursuant to long-term contracts are supported by existing long-term contracts to mine coal on behalf of customers and life-of-mine plans
associated with those contracts. The contracts with each customer of the Unconsolidated Mines eliminate Company exposure to spot coal market
price fluctuations. At the Unconsolidated Mines, compensation from each customer to the Company includes reimbursement of all mine operating
costs plus a contractually agreed fee based on the amount of coal delivered. Red Hills Mine - MLMC sells coal to its customer at a contractually
agreed-upon price which adjusts monthly, primarily based on changes in the level of established indices which reflect general U.S. inflation rates.
MLMC is the exclusive supplier of coal to its customer’s power plant under its contract that runs through 2032. The Company’s assessment of the
economic viability of the mineral reserves associated with MLMC takes into account estimated customer demand, including the minimum annual
take provision in the contract, as well as cost of production. The economic viability of the uncommitted reserves assumes coal would be mined in a
mine-mouth operation that minimizes or eliminates transportation costs and under contract terms, which are similar to those contained in the
Company’s existing long-term management fee contracts, or leased to other miners. The majority of the Company’s uncommitted reserves are
located in close proximity to power generation or other facilities, which could allow a mine-mouth operation. Lessees of this coal generally would
mine the coal if the coal sale price would exceed the lessee operating costs. As to coal mined and sold by lessees, the Company would receive a
royalty based on a percentage of the sale price. See footnote (h) for coal reserves currently leased to others.
The contracts for these mines require the customer to cover the cost of the ongoing replacement and upkeep of the plant and equipment of the mine.
Although the term of the existing coal sales agreement terminates in 2022, the term may be extended for three additional periods of five years, or
until 2037, at the option of the Company.
These reserves are owned or controlled by customers. The Company conducts activities to extract these customer-owned and controlled reserves
pursuant to long-term service contracts.
8
(f)
(g)
(h)
These reserves are owned or controlled by Bisti's customer and it controls proven and probable reserve data. Bisti’s customer declined to allow us to
include the proven and probable reserve data in this Form 10-K. The Company conducts activities to extract these customer-owned and controlled
reserves pursuant to a long-term service contract.
Centennial ceased active mining operations at the end of 2015.
The proven and probable reserves included in the table do not include coal that is leased to others. The Company had 70.0 million tons and
71.4 million tons in 2019 and 2018, respectively, of Eastern Undeveloped Mines with leased coal committed under contract.
Unconsolidated Mines
Freedom Mine — The Coteau Properties Company
The Freedom Mine generally produces between 13.5 million and 14.5 million tons of lignite coal annually. The mine started
delivering coal in 1983. All production from the mine is delivered to Dakota Coal Company, a wholly owned subsidiary of
Basin Electric Power Cooperative. Dakota Coal Company then sells the coal to the Great Plains Synfuels Plant, Antelope
Valley Station and Leland Olds Station, all of which are operated by affiliates of Basin Electric Power Cooperative.
The Freedom Mine, operated by Coteau, is located approximately 90 miles northwest of Bismarck, North Dakota. The main
entrance to the Freedom Mine is accessed by means of a paved road and is located on County Road 15. Coteau holds 310 leases
granting the right to mine approximately 33,599 acres of coal interests and the right to utilize approximately 22,939 acres of
surface interests. In addition, Coteau owns in fee 33,525 acres of surface interests and 4,107 acres of coal interests.
Substantially all of the leases held by Coteau were acquired in the early 1970s and have been replaced with new leases or have
lease terms for a period sufficient to meet Coteau’s contractual production requirements.
The reserves are located in Mercer County, North Dakota, starting approximately two miles north of Beulah, North Dakota. The
center of the basin is located near the city of Williston, North Dakota, approximately 100 miles northwest of the Freedom Mine.
The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor
Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the
unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel,
sand, silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The
coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in
the upland portions of the reserve area consists of till, silty sands and clayey silts.
Falkirk Mine — The Falkirk Mining Company
The Falkirk Mine generally produces between 7 million and 8 million tons of lignite coal annually primarily for the Coal Creek
Station, an electric power generating station owned by Great River Energy. The mine started delivering coal in 1978.
Commencing in the second half of 2014, Falkirk began delivering coal to Spiritwood Station, another electric power generating
station owned by Great River Energy. Annual deliveries to Spiritwood Station have averaged between 200,000 and 400,000
tons.
The Falkirk Mine, operated by Falkirk, is located approximately 50 miles north of Bismarck, North Dakota on a paved access
road off U.S. Highway 83. Falkirk holds 307 leases granting the right to mine approximately 45,997 acres of coal interests and
the right to utilize approximately 24,300 acres of surface interests. In addition, Falkirk owns in fee 39,844 acres of surface
interests and 1,270 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the early 1970s with
initial terms that have been further extended by the continuation of mining operations.
The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of the town of Washburn,
North Dakota to four miles north of the town of Underwood, North Dakota. Structurally, the area is located on an intercratonic
basin containing a thick sequence of sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel
Butte Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor Formation. The Sentinel
Butte Formation conformably overlies the Bullion Creek Formation. The general stratigraphic sequence in the upland portions
of the reserve area (Sentinel Butte Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay,
lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a repeating sequence of silty to sand
clays with generally thin lignite beds.
9
South Hallsville No. 1 Mine — The Sabine Mining Company
The South Hallsville No. 1 Mine generally produces between 2.5 million and 3.5 million tons of lignite coal annually. The mine
started delivering coal in 1985. All production from the mine is delivered to Southwestern Electric Power Company's Henry W.
Pirkey Plant.
The South Hallsville No. 1 Mine, operated by Sabine, is located approximately 150 miles east of Dallas, Texas on FM 968. The
entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or option to acquire any of the reserves at the
South Hallsville No. 1 Mine. Southwestern Electric Power Company controls all of the reserves within the South Hallsville
No. 1 Mine.
Five Forks Mine — Demery Resources Company, LLC
The Five Forks Mine, operated by Demery, began delivering coal in 2012 and is located approximately three miles north of
Creston, Louisiana on State Highway 153. Access to the Five Forks Mine is by means of a paved road. Demery has no title,
claim, lease or option to acquire any of the reserves at the Five Forks Mine. Demery's customer, Five Forks Mining, LLC,
controls all of the reserves within the Five Forks Mine.
Marshall Mine — Caddo Creek Resources Company, LLC
The Marshall Mine, operated by Caddo Creek, began delivering coal in 2014 and is located approximately ten miles south of
Marshall, Texas on FM-1186. Access to the Marshall Mine is by means of a paved road. Caddo Creek has no title, claim, lease
or option to acquire any of the reserves at the Marshall Mine. Caddo Creek's customer, Marshall Mine, LLC, controls all of the
reserves within the Marshall Mine.
Eagle Pass Mine — Camino Real Fuels, LLC
The Eagle Pass Mine, operated by Camino Real, began delivering coal in 2015 to Camino Real's customer, Dos Republicas
Coal Partnership. The Eagle Pass Mine produces between 1.0 million and 2.0 million tons of bituminous coal annually.
Eagle Pass Mine is located approximately six miles north of Eagle Pass, Texas on State Highway 1588. Access to the Eagle
Pass Mine is by means of a paved road. Camino Real has no title, claim, lease or option to acquire any of the reserves at the
Eagle Pass Mine. Camino Real's customer, Dos Republicas Coal Partnership, controls all of the reserves within the Eagle Pass
Mine.
Liberty Mine — Liberty Fuels Company, LLC
In 2017, Mississippi Power instructed Liberty to permanently cease all mining and delivery of lignite and to commence mine
reclamation. The terms of the contract specified that Mississippi Power was responsible for all mine closure costs and Liberty
receives compensation for providing mine reclamation services. As of December 31, 2019, the mine areas have been reclaimed
and final mine reclamation activities, primarily monitoring, will continue until final bond release.
Coyote Creek Mine - Coyote Creek Mining Company, LLC
In 2016, the Coyote Creek Mine began delivering coal to the Coyote Station owned by Otter Tail Power Company, Northern
Municipal Power Agency, Montana-Dakota Utilities Company and Northwestern Corporation. The Coyote Creek Mine generally
produces approximately 1.5 million to 2.5 million tons of lignite coal annually when Coyote Station is operating at anticipated
levels.
The Coyote Creek Mine is located approximately 70 miles northwest of Bismarck, North Dakota. The main entrance to the Coyote
Creek Mine is accessed by means of a four-mile paved road extending west off of State Highway 49. Coyote Creek holds a
sublease to 85 leases granting the right to mine approximately 7,809 acres of coal interests and the right to utilize approximately
15,168 acres of surface interests. In addition, Coyote Creek Mine owns in fee 160 acres of surface interests and has four easements
to conduct coal mining operations on approximately 352 acres.
The reserves are located in Mercer County, North Dakota, starting approximately six miles southwest of Beulah, North Dakota.
The center of the basin is located near the city of Williston, North Dakota, approximately 110 miles northwest of the Coyote Creek
Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor
Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated
sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand silt, clay and till.
The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds
10
are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve
area consists of till, silty sands and clayey silts.
Navajo Mine - Bisti Fuels Company, LLC
Bisti has been the contract miner at NTEC's Navajo Mine since 2017. Bisti generally delivers approximately 5.0 million tons of
sub-bituminus coal to the Four Corners Power Plant when the plant is operating at anticipated levels.
The Navajo Mine is located approximately 25 miles southwest of Farmington, New Mexico, off Indian Service Road 3005, and
is on the Navajo Nation. Access to the Navajo Mine is by means of a paved road. Bisti has no title, claim, lease or option to acquire
any of the reserves at Navajo Mine. NTEC, a wholly-owned limited liability company of The Navajo Nation, controls all of the
reserves within the Navajo Mine.
Consolidated Mines
Red Hills Mine — Mississippi Lignite Mining Company
The Red Hills Mine generally produces between 2 million and 3 million tons of lignite coal annually. The Red Hills Mine
started delivering coal in 2000. All production from the mine is delivered to its customer's Red Hills Power Plant.
The Red Hills Mine, operated by MLMC, is located approximately 120 miles northeast of Jackson, Mississippi. The entrance to
the mine is by means of a paved road located approximately one mile west of Highway 9. MLMC owns in fee approximately
6,840 acres of surface interest and 3,950 acres of coal interests. MLMC holds leases granting the right to mine approximately
6,149 acres of coal interests and the right to utilize approximately 5,768 acres of surface interests. MLMC holds subleases
under which it has the right to mine approximately 1,545 acres of coal interests. The majority of the leases held by MLMC
were originally acquired during the mid-1970s to the early 1980s with terms extending 50 years, many of which can be further
extended by the continuation of mining operations.
The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that outcrops/subcrops along the margin of
the Mississippi Embayment. The potentially exploitable tertiary lignites in Mississippi are found in the Wilcox Group. The
outcropping Wilcox is composed predominately of non-marine sediments deposited on a broad flat plain.
Centennial Natural Resources
Centennial ceased active mining operations at the end of 2015. Centennial and its affiliate, NACRC, own in fee approximately
5,602 acres of coal interests and approximately 2,323 acres of surface interests in Alabama. Centennial holds leases in Alabama
granting the right to mine approximately 7,269 acres of coal interests and the right to utilize approximately 8,535 acres of surface
interests. The majority of the leases held by Centennial were originally acquired between 2000 and 2012 with terms that can be
extended by the continuation of mining activities.
11
North American Mining
NAMining primarily operates and maintains draglines to mine limestone and sand at the following mines in Florida and
Virginia pursuant to mining services agreements with the mine owners:
Location Name
White Rock — North
Krome
Alico
FEC
White Rock — South
SCL
Card Sound
Central State Aggregates
Mid Coast Aggregates
West Florida Aggregates
St. Catherine
Center Hill
Inglis
Titan Corkscrew
Palm Beach Aggregates
Perry
SDI Aggregates
Queensfield
County Line
Newberry
Location
Miami
Miami
Ft. Myers
Miami
Miami
Miami
Florida City
Zephyrhills
Customer
WRQ
Cemex
Cemex
Cemex
WRQ
Cemex
Cemex
McDonald Group
Sumter County
McDonald Group
Hernando County
McDonald Group
Sumter County
Sumter County
Crystal River
Ft. Myers
Cemex
Cemex
Cemex
Titan America
Loxahatchee
Palm Beach Aggregates
Lamont
Martin Marietta
Florida City
Blue Water Industries
King William
County, VA
Pasco County
King William Sand and
Gravel Company, Inc.
K&M Pasco 130
Holdings, LLC
Alachua County
Argos USA, LLC
Year NACCO
Started Operations
1995
2003
2004
2005
2005
2006
2009
2016
2016
2016
2016
2016
2016
2017
2017
2018
2018
2018
2019
2019
NAMining's customers control all of the limestone and sand reserves within their respective mines.
Access to the White Rock mine is by means of a paved road from 122nd Avenue.
Access to the Krome mine is by means of a paved road from Krome Avenue.
Access to the Alico mine is by means of a paved road from Alico Road.
Access to the FEC mine is by means of a paved road from NW 118th Avenue.
Access to the SCL mine is by means of a paved road from NW 137th Avenue.
Access to the Card Sound mine is by means of a paved road from SW 408th Street.
Access to the Central State Aggregates mine is by means of a paved road from Yonkers Boulevard.
Access to the Mid Coast Aggregates mine is by means of a paved road from State Road 50.
Access to the West Florida mine is by means of a paved road from Cortez Boulevard.
Access to the St. Catherine mine is by means of a paved road from County Road 673.
Access to the Center Hill mine is by means of a paved road from West Kings Highway.
Access to the Inglis mine is by means of a paved road from Highway 19 South.
Access to the Titan Corkscrew mine is by means of a paved road from Corkscrew Road.
Access to the Palm Beach Aggregates mine is by means of a paved road from State Road 80.
Access to the Perry mine is by means of paved road from Nutall Rise Road.
Access to the SDI Aggregates mine is by means of paved road from SW 167th AVE.
12
Access to the Queensfield Mine is by means of paved road from Dabney's Mill Road (SR 604).
Access to the County Line mine is by means of paved road from 18744 County Line Road.
Access to the Newberry mine is by means of paved road from NW County Road 235 (CR 235).
NAMining has no title, claim, lease or option to acquire any of the reserves at any of the mines where it provides services.
General Information
Leases. The leases held by Coteau, Coyote Creek, Falkirk and MLMC have a variety of continuation provisions, but generally
permit the leases to be continued beyond their fixed terms. Centennial holds the mining rights to the reserves within its mines
through fee ownership, and leases and licenses from the coal and surface owners. NACCO expects coal will be available to
meet customers' future production requirements utilizing land and reserves that are currently owned or leased or accessible
through ownership acquisition or new leases.
Previous Operators. There were no previous operators of the Freedom Mine, Falkirk Mine, South Hallsville No. 1 Mine, Five
Forks Mine, Marshall Mine, Eagle Pass Mine, Liberty Mine, Coyote Creek Mine or Red Hills Mine. NTEC's Navajo Mine was
previously operated by a third party.
Exploration and Development. All coal mines are well past the exploration stage. With the exceptions of Centennial and
Liberty, additional pit development is under way at each mine. Drilling programs are routinely conducted for the purpose of
refining guidance related to ongoing operations. For example, at the Red Hills Mine, the lignite coal reserve has been defined
by a drilling program that is designed to provide 500-foot spaced drill holes for areas anticipated to be mined within six years
of the current pit. Drilling beyond the six-year horizon ranges from 1,000 to 2,000-foot centers. Drilling is conducted annually
to stay current with the advance of mining operations. Geological evaluation is in process at all operating locations.
Facilities and Equipment. The facilities and equipment for each of the coal mines are maintained to allow for safe and efficient
operation. The equipment is well maintained, in good physical condition and is either updated or replaced periodically with
newer models or upgrades available to keep up with modern technology. As equipment wears out, the mines evaluate what
replacement option will be the most cost-efficient, including the evaluation of both new and used equipment, and proceed with
that replacement. The majority of electrical power for the draglines, shovels, coal crushers, coal conveyors and facilities
generally is provided by the power generation customer for the applicable mine. Electrical power for the Sabine facilities is
provided by Upshur Rural Electric Co-op. Electrical power for the Sabine dragline operating in the South Marshall permit area
is provided by Southwestern Electric Power Company. Electrical power for the draglines operating in Sabine's Rusk permit
area is provided by Rusk County Electric Co-op. Electrical power for the MLMC draglines and shovels is provided by 4-
County Electric Power Association. The remainder of the equipment generally is powered by diesel fuel or gasoline.
13
The mining method and total cost of the property, plant and equipment, net of applicable accumulated amortization,
depreciation and impairment as of December 31, 2019 is set forth in the chart below:
Location
Mining Method
Total Historical Cost of Mine
Property, Plant and
Equipment
(excluding Coal Land, Real
Estate
and Construction in Progress),
Net of
Applicable Accumulated
Amortization, Depreciation
and Impairment
(in millions)
Unconsolidated Mining Operations
Freedom Mine — The Coteau Properties Company
Dragline operation with 3 draglines
Falkirk Mine — The Falkirk Mining Company
Dragline operation with 4 draglines
South Hallsville No. 1 Mine — The Sabine Mining
Company
Dragline operation with 4 draglines
Five Forks Mine — Demery Resources Company, LLC
Truck-shovel operation
Marshall Mine — Caddo Creek Resources Company, LLC Dragline operation with 1 dragline
Eagle Pass Mine — Camino Real Fuels, LLC
Truck-shovel operation
Coyote Creek Mine — Coyote Creek Mining Company,
LLC
Navajo Mine — Bisti Fuels Company, LLC
Consolidated Mining Operations
Dragline operation with 1 dragline
Dragline operation with 2 draglines
Red Hills Mine — Mississippi Lignite Mining Company
Dragline operation with 1 dragline
NAMining
Other
(a)
N/A
$
$
$
$
$
$
$
$
$
$
$
86.6
49.0
113.7
—
—
—
149.9
—
57.8
10.9
1.2
(a) During 2019, NAMining operated 31 draglines at 20 quarries. Of the 31 draglines, 5 are owned by the Company and 26 are
owned by customers. The mining process at the limestone mines involves excavating limestone from a water-filled quarry
utilizing draglines. The excavated limestone is transported and processed by the customer.
Predominantly all of Bisti, Caddo Creek, Camino Real and Demery's machinery and equipment is owned by the customer of
the respective mines.
All of the Company’s coal mines are surface mines that are located adjacent to, or nearby, the customer’s power plant, synfuels
plant or activated carbon facility. Overburden, the material between the surface of the land and the coal seam, is removed using
draglines, dozers and/or trucks and shovels, including electric rope shovels. Coal is then extracted and loaded onto haul trucks
using surface miners, excavators, dozers, scrapers, backhoes and other machinery and equipment. Coal is taken to a stockpile or
delivered directly to customers via conveyor or short haul rail. After mining, draglines and/or trucks and shovels are used to
backfill the overburden that was removed at the beginning of the process to allow for site reclamation.
Government Regulation
The Company's operations are subject to various federal, state and local laws and regulations on matters such as employee
health and safety, and certain environmental laws relating to, among other matters, the reclamation and restoration of coal
mining properties, air pollution, water pollution, the disposal of wastes and effects on groundwater. In addition, the electric
power generation industry is subject to extensive regulation regarding the environmental impact of its power generation
activities that could affect demand for coal from the Company's Coal Mining segment.
Numerous governmental permits and approvals are required for coal mining operations. The Company's subsidiaries hold or
will hold the necessary permits at all of its coal mining operations except Demery, Caddo Creek, Bisti and Camino Real, where
the customers hold the respective permits. The Company believes, based upon present information provided to it by these third-
party mine permit holders, that these third parties have all permits necessary for the Company to operate Caddo Creek, Demery,
Bisti and Camino Real; however, the Company cannot be certain that these third parties will be able to maintain all such
permits in the future.
14
At the coal mining operations where the Company's subsidiaries hold the permits, the Company is required to prepare and
present to federal, state or local governmental authorities data pertaining to the effect or impact that any proposed exploration
for or production of coal may have upon the environment and public and employee health and safety.
Some laws, as discussed below, place many requirements on the coal mining operations and the limestone quarries where the
Company provides services. Federal and state regulations require regular monitoring of the Company's operations to ensure
compliance.
Mine Health and Safety Laws
The Federal Mine Safety and Health Act of 1977 imposes safety and health standards on all mining operations. Regulations are
comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures,
blasting, the equipment used in mining operations and other matters. The Federal Mine Safety and Health Administration
enforces compliance with these federal laws and regulations.
Environmental Laws
The Company's coal mining operations are subject to various federal environmental laws, as amended, including:
•
•
•
•
•
the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”);
the Clean Air Act, including amendments to that act in 1990 (“CAA”);
the Clean Water Act of 1972 (“CWA”);
the Resource Conservation and Recovery Act ("RCRA"); and
the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
In addition to these federal environmental laws, various states have enacted environmental laws that provide for higher levels
of environmental compliance than similar federal laws. These state environmental laws require reporting, permitting and/or
approval of many aspects of coal mining operations. Both federal and state inspectors regularly visit mines to enforce
compliance. The Company has ongoing training, compliance and permitting programs to ensure compliance with such
environmental laws.
Surface Mining Control and Reclamation Act
SMCRA establishes mining, environmental protection and reclamation standards for all aspects of surface coal mining
operations. Where state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the
primary regulatory authority. With the exception of the Navajo Nation in New Mexico, which is directly regulated by the Office
of Surface Mining Reclamation and Enforcement ("OSMRE") under their Indian Lands Program, all of the states where the
Company has active coal mining operations have achieved primary control of enforcement through federal authorization under
SMCRA.
Coal mine operators must obtain SMCRA permits and permit renewals for coal mining operations from the applicable
regulatory agency. These SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil
removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, protection of
the hydrologic balance, surface drainage control, mine drainage and mine discharge control and treatment, and revegetation.
Although mining permits have stated expiration dates, SMCRA provides for a right of successive renewal. The cost of
obtaining surface mining permits can vary widely depending on the quantity and type of information that must be provided to
obtain the permits; however, the cost of obtaining a permit is usually between $1,000,000 and $5,000,000, and the cost of
obtaining a permit renewal is usually between $15,000 and $100,000.
The Abandoned Mine Land Fund, which is provided for by SMCRA, imposes a fee on certain coal mining operations. The
proceeds are intended to be used principally to reclaim mine lands closed prior to 1977. In addition, the Abandoned Mine Land
Fund also makes transfers annually to the United Mine Workers of America Combined Benefit Fund (the “Fund”), which
provides health care benefits to retired coal miners who are beneficiaries of the Fund. The fee is currently $0.08 per ton on
lignite coal produced and $0.28 per ton on other surface-mined coal.
SMCRA establishes operational, reclamation and closure standards for surface coal mines. The Company accrues for the costs
of current mine disturbance and final mine closure, including the cost of treating mine water discharges, at mines where the
Company's subsidiaries hold the mining permit. These obligations are unfunded, with the exception of the final mine closure
costs for the Coyote Creek Mine, which are being funded throughout the production stage.
15
SMCRA stipulates compliance with many other major environmental programs, including the CAA and CWA. The U.S. Army
Corps of Engineers regulates activities affecting navigable waters, and the U.S. Bureau of Alcohol, Tobacco and Firearms
regulates the use of explosives for blasting. In addition, the U.S. Environmental Protection Agency (the “EPA”), the U.S. Army
Corps of Engineers and the OSMRE are engaged in a series of rulemakings and other administrative actions under the CWA
and other statutes that are directed at reducing the impact of coal mining operations on water bodies.
The Company does not believe there is any significant risk to the Company's subsidiaries ability to maintain its existing mining
permits or its ability to acquire future mining permits for its mines.
Clean Air Act and Affordable Clean Energy Rule ("ACE")
The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including sulfur
dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA and the corresponding state laws that extensively
regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal
mining operations occur through CAA permitting requirements and/or emission control requirements relating to air
contaminants, especially particulate matter. Indirect impacts on coal mining operations occur through regulation of the air
emissions of sulfur dioxide, nitrogen oxides, mercury, particulate matter and other compounds emitted by coal-fired power
plants. The EPA has promulgated or proposed regulations that impose tighter emission restrictions in a number of areas, some
of which are currently subject to litigation. The general effect of tighter restrictions is to reduce demand for coal. Ongoing
reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business,
financial condition and results of operations.
States are required to submit to the EPA revisions to their state implementation plans ("SIPs") that demonstrate the manner in
which the states will attain national ambient air quality standards ("NAAQS") every time a NAAQS is issued or revised by the
EPA. The EPA has adopted NAAQS for several pollutants, which continue to be reviewed periodically for revisions. When the
EPA adopts new, more stringent NAAQS for a pollutant, some states have to change their existing SIPs. If a state fails to revise
its SIP and obtain EPA approval, the EPA may adopt regulations to effect the revision. Coal mining operations and coal-fired
power plants that emit particulate matter or other specified material are, therefore, affected by changes in the SIPs. Through this
process over the last few years, the EPA has reduced the NAAQS for particulate matter, ozone, and nitrogen oxides. The
Company's coal mining operations and power generation customers may be directly affected when the revisions to the SIPs are
made and incorporate new NAAQS for sulfur dioxide, nitrogen oxides, ozone and particulate matter. In March 2019, the EPA
published a final rule that retains the current primary (health-based) NAAQS for sulfur oxides (SOx) without revision. The
current primary standard is set at a level of 75 parts per billion, as the 99th percentile of daily maximum 1-hour SO2
concentrations, averaged over 3 years. In mid-2011, the EPA finalized the Cross-State Air Pollution Rule ("CSAPR") to address
interstate transport of pollutants. This affects states in the eastern half of the U.S. and Texas. This rule imposes additional
emission restrictions on coal-fired power plants to attain ozone and fine particulate NAAQS. The EPA began implementation
of the rule in 2015, when Phase I emission reductions in sulfur dioxide and nitrogen dioxide became effective. Phase II
reductions became effective in 2017. In 2016, the EPA mandated additional reductions in nitrogen oxide emissions. The U.S.
Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") remanded the CSAPR Update to the EPA to address the
court’s holding that the rule unlawfully allows significant contribution to continue beyond downwind attainment deadlines. In
2018, the EPA finalized all remaining ozone designations to comply with the 2015 ozone air quality standards. The U.S. Court
of Appeals for the D.C. Circuit issued a per curium opinion rejecting various industry challenges to the EPA’s 2015 revisions to
the ozone NAAQS, including that the EPA was required to consider certain adverse effects and background ozone when setting
the standards. None of the power plants supplied by the Company are within non-attainment areas for ozone.
The CAA Acid Rain Control Provisions were promulgated as part of the CAA Amendments of 1990 in Title IV of the CAA
(“Acid Rain Program”). The Acid Rain Program required reductions of sulfur dioxide emissions from coal-fired power plants.
The Acid Rain Program is now a mature program, and the Company believes that any market impacts of the required controls
have likely been factored into the coal market.
The EPA promulgated a regional haze program designed to protect and to improve visibility at and around Class I Areas, which
are generally National Parks, National Wilderness Areas and International Parks. This program may restrict the construction of
new coal-fired power plants, the operation of which may impair visibility at and around the Class I Areas. Additionally, the
program requires certain existing coal-fired power plants to install additional control measures designed to limit haze-causing
emissions, such as sulfur dioxide, nitrogen oxide and particulate matter. States were required to submit Regional Haze SIPs to
the EPA in 2007; however, many states did not meet that deadline. In 2016, the EPA finalized revisions to the Regional Haze
Rule which addresses requirements for the second planning period. In September 2019, the EPA issued final regional haze
guidance that indicates that a re-evaluation of sources already subject to best available retrofit technologies (BART) is likely
unnecessary. The guidance also encourages states to balance visibility benefits against other factors in selecting the measures
16
necessary to make “reasonable progress” toward natural visibility conditions. Finally, when comparing various control options
to determine which ones may be “cost-effective,” the final guidance recommends comparing cost to visibility benefits. SIPs
will be required by July 31, 2021.
Under the CAA, new and modified sources of air pollution must meet certain new source standards (the “New Source Review
Program”). In the late 1990s, the EPA filed lawsuits against owners of many coal-fired power plants in the eastern U.S. alleging
that the owners performed non-routine maintenance, causing increased emissions that should have triggered the application of
these new source standards. Some of these lawsuits have been settled with the owners agreeing to install additional emission
control devices in their coal-fired power plants. The EPA is proposing to clarify the process for evaluating whether the New
Source Review (NSR) permitting program would apply to proposed projects at existing air pollution sources. This proposal
would make it clear that both emissions increases and decreases from a major modification at an existing source are to be
considered during Step 1 of the two-step NSR applicability test which is designed to determine if there is a “significant
emission increase”. This clarification is expected to be finalized in 2020. The remaining litigation and the uncertainty around
the New Source Review Program rules could adversely impact demand for coal. Any additional new controls may have an
adverse impact on the demand for coal, which may have a material adverse effect on the Company’s business, financial
condition or results of operations.
Under the CAA, the EPA also adopts national emission standards for hazardous air pollutants. In December 2011, the EPA
adopted a final rule called the Mercury and Air Toxics Standard (“MATS”), which applies to new and existing coal-fired and
oil-fired units. This rule requires mercury emission reductions in fine particulates, which are being regulated as a surrogate for
certain metals.
The Company's power generation customers must incur substantial costs to control emissions to meet all of the CAA
requirements, including the requirements under MATS and the EPA's regional haze program. These costs raise the price of
coal-generated electricity, making coal-fired power less competitive with other sources of electricity, thereby reducing demand
for coal. In addition, the Company's power generation customers may choose to close coal-fired generation units or to postpone
or cancel plans to add new capacity, in light of these costs and the limited time available for compliance with the requirements
and the prospects of the imposition of additional future requirements on emissions from coal-fired units. If the Company's
customers cannot offset the cost to control certain regulated pollutant emissions by lowering costs or if the Company's
customers elect to close coal-fired units, the Company’s business, financial condition and results of operations could be
materially adversely affected.
Global climate change continues to attract considerable attention in the United States. The U.S. Congress has considered
climate change legislation aimed at reducing greenhouse gas (“GHG”) emissions, particularly from coal combustion by power
plants. Enactment of laws and passage of regulations regarding GHG emissions by the U.S. or additional states, or other actions
to limit carbon dioxide emissions, such as opposition by environmental groups to expansion or modification of coal-fired
power plants, could result in electric generators switching from coal to other fuel sources.
The U.S. Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion of coal and
other fuels. These proposals include emission taxes, emission reductions, including carbon tax and “cap-and-trade” programs,
and mandates or incentives to generate electricity by using renewable resources, such as wind or solar power. Some states have
established programs to reduce GHG emissions. Further, governmental agencies have been providing grants or other financial
incentives to entities developing or selling alternative energy sources with lower levels of GHG emissions, which may lead to
more competition from those entities.
The EPA introduced a GHG regulation program under the CAA by issuing a finding that the emission of six GHGs, including
carbon dioxide and methane, may reasonably be anticipated to endanger public health and welfare. Based on this finding, the
EPA published a New Source Performance Standard for greenhouse gases, emitted from future new power plants. In 2019, the
EPA issued the Affordable Clean Energy ("ACE") Rule to reduce greenhouse gas emissions from existing electric generating
units ("EGUs"). In contrast to the Clean Power Plan, the ACE rule limits "best system of emission reduction" ("BSER") to only
"inside the fenceline" heat rate improvement technologies or systems that can be applied at an affected coal fired EGU. Under
ACE, states have the primary role in developing standards of performance that result from the application of BSER. The EPA
has not provided a standard of performance that it will deem presumptively acceptable in a state plan, but urges states to
provide full justification for each component of their plans so that the EPA can evaluate BSER on a unit-by-unit basis.
States have until 2022 to develop and submit compliance plans to the EPA. The EPA will have a year to review and approve the
plans. The states are given 24 months from the approval date to implement the rule and can extend the compliance schedule for
units that meet progress milestones. An EGU’s compliance with the ACE rule may not be required until 2024 or later. Until
states develop plans that are accepted by the EPA, the Company will not be able to determine the final impact of the rule.
17
The U.S. has not implemented the 1992 Framework Convention on Global Climate Change (“Kyoto Protocol”), which became
effective for many countries on February 16, 2005. The Kyoto Protocol was intended to limit or reduce emissions of GHGs.
The U.S. has not ratified the emission targets of the Kyoto Protocol or any other GHG agreement. Though the U.S. has not
accepted these international GHG limiting treaties, numerous lawsuits and regulatory actions have been undertaken by states
and environmental groups to try to force controls on the emission of carbon dioxide; or to prevent the construction of new coal-
fired power plants.
As a successor to the Kyoto Protocol, in 2015, international negotiators finalized the Paris Agreement under the United Nations
Framework Convention on Climate Change (“Paris Agreement”). Unlike the Kyoto Protocol, the Paris Agreement has no
binding GHG reduction mandates on signatories. Participating countries only submit a description of their intended GHG
reductions, and provide periodic progress updates, with no penalties for not meeting their self-imposed targets. The Paris
Agreement also includes language stating that developed countries will provide financial assistance to help developing
countries meet their GHG targets and adapt to climate change, but there are no mandated contributions. In November 2019, the
United States submitted a formal notification of its withdrawal from the Paris Agreement. The renegotiation and
implementation of the Paris Agreement, or other international agreements, the regulations promulgated to date by the EPA with
respect to GHG emissions or the adoption of new legislation or regulations to control GHG emissions, could have a materially
adverse effect on the Company’s business, financial condition and results of operations.
Significant public opposition has also been raised with respect to the proposed construction of certain new coal-fueled EGUs
due to the potential for increased air emissions. Such opposition, as well as any corporate or investor policies against coal-fired
EGUs or requiring disclosures related to global climate change, could also reduce the demand for the Company's coal or
marketability of NACCO stock. Further, policies limiting available financing for the development of new coal-fueled EGUs or
coal mines or the retrofitting of existing EGUs could adversely impact the global demand for coal in the future. The potential
impact on the Company of future laws, regulations or other policies or circumstances will depend upon the degree to which any
such laws, regulations or other policies or circumstances force electricity generators to diminish their reliance on coal as a fuel
source. In view of the significant uncertainty surrounding each of these factors, it is not possible for us to predict reasonably the
impact that any such laws, regulations or other policies may have on the Company's business, financial condition and results of
operations. However, such impacts could have a material adverse effect on the Company's business, financial condition and
results of operations.
The Company believes it has obtained all necessary permits under the CAA at all of its coal mining operations where it is
responsible for permitting and is in compliance with such permits.
Clean Water Act
The Clean Water Act ("CWA") affects coal mining operations by establishing in-stream water quality standards and treatment
standards for waste water discharge. Permits requiring regular monitoring, reporting and performance standards govern the
discharge of pollutants into water.Waters discharged from coal mines are required to meet these standards. These federal and
state requirements could require more costly water treatment and could materially adversely affect the Company’s business,
financial condition and results of operations.
The Company believes it has obtained all permits required under the CWA and corresponding state laws and is in compliance
with such permits. In many instances, mining operations require securing CWA authorization or a permit from the U.S. Army
Corps of Engineers for operations in waters of the United States.
Bellaire Corporation, a wholly owned non-operating subsidiary of the Company (“Bellaire”), is treating mine water drainage
from coal refuse piles associated with two former underground coal mines in Ohio and one former underground coal mine in
Pennsylvania, and is treating mine water from a former underground coal mine in Pennsylvania. Bellaire anticipates that it will
need to continue these activities indefinitely. See Note 7 to the Consolidated Financial Statements in this Form 10-K for further
discussion of the Company's asset retirement obligations.
Bellaire was notified by the Pennsylvania Department of Environmental Protection ("DEP") during 2004 that in order to obtain
renewal of a permit, Bellaire would be required to establish a mine water treatment trust (the "Trust"). See Note 7 and Note 9 to
the Consolidated Financial Statements in this Form 10-K for further information on the Trust.
18
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act ("RCRA") affects coal mining operations by establishing requirements for the
treatment, storage and disposal of wastes, including hazardous wastes. Coal mine wastes, such as overburden and coal cleaning
wastes, currently are exempted from hazardous waste management. In December 2014, the EPA finalized a rule specifying
management standards for coal combustion residuals or coal ash ("CCRs") as a non-hazardous waste. In 2018, the EPA
finalized revisions to the 2014 regulations in response to litigation of the 2014 rule. One revision allows a state director (in a
state with an approved CCR permit program) or the EPA (where EPA is the permitting authority) to suspend groundwater
monitoring requirements if there is evidence that there is no potential for migration of hazardous constituents to the uppermost
aquifer during the active life of the unit and post closure care. The second revision allows issuance of technical certifications in
lieu of a professional engineer. In addition, the EPA revised the groundwater protection standards and extended the deadline for
some facilities that must close CCR units. The EPA is currently proposing additional changes to the CCR rule that would affect
annual groundwater monitoring reporting requirements, environmental demonstration threshold, temporary placement of
unencapsulated CCR on the land, and establish a new deadline for all unlined/non-compliant surface impoundments.These may
raise the cost for CCR disposal at coal-fired power plants, making them less competitive, and may have an adverse impact on
demand for coal.
The EPA rule exempts CCRs disposed of at mine sites and reserves any regulation thereof to the OSMRE. The OSMRE
suspended all rulemaking actions on CCRs, but could re-initiate them in the future. The outcome of these rulemakings, and any
subsequent actions by EPA and OSMRE, could impact those Company operations that beneficially use CCRs. If the Company
were unable to beneficially use CCRs, its revenues for disposing of CCRs from its customers may decrease and its costs may
increase due to the purchase of alternative materials for beneficial uses.
Comprehensive Environmental Response, Compensation and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state laws create
liabilities for the investigation and remediation of releases of hazardous substances into the environment and for damages to
natural resources. The Company must also comply with reporting requirements under the Emergency Planning and Community
Right-to-Know Act and the Toxic Substances Control Act.
From time to time, the Company has been the subject of administrative proceedings, litigation and investigations relating to
environmental matters.
The extent of the liability and the cost of complying with environmental laws cannot be predicted with certainty due to many
factors, including the lack of specific information available with respect to many sites, the potential for new or changed laws
and regulations, the development of new remediation technologies and the uncertainty regarding the timing of work with
respect to particular sites. As a result, the Company may incur material liabilities or costs related to environmental matters in
the future, and such environmental liabilities or costs could materially and adversely affect the Company’s results of operations
and financial condition. In addition, there can be no assurance that changes in laws or regulations would not affect the manner
in which the Company is required to conduct its operations.
19
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following tables set forth as of March 1, 2020 the name, age, current position and principal occupation and employment
during the past five years of the Company’s executive officers. There exists no arrangement or understanding between any
executive officer and any other person pursuant to which such executive officer was selected. Certain executive officers of the
Company listed below are also executive officers for NACoal.
Name
J.C. Butler, Jr.
EXECUTIVE OFFICERS OF THE COMPANY
Age Current Position
Other Positions
59
President and Chief Executive Officer of NACCO (from
September 2017) and President and Chief Executive
Officer of NACoal (from July 2015)
From prior to 2015 to September 2017, Senior Vice
President - Finance, Treasurer and Chief Administrative
Officer of NACCO. From prior to 2015 to September
2017, Assistant Secretary of Hamilton Beach Brands
("HBB") and Kitchen Collection ("KC"). From prior to
2015 to July 2015, Senior Vice President - Project
Development, Administration and Mississippi
Operations of NACoal.
Matthew J. Dilluvio
30 Associate Counsel and Assistant Secretary of NACCO
and NACoal (from June 2019)
From October 2016 to May 2019, Associate, Sidley
Austin LLP (law firm). From prior to 2015 to September
2016, Associate, White and Case LLP (law firm).
Elizabeth I. Loveman
50 Vice President and Controller and Principal Financial
Officer (from prior to 2015)
John D. Neumann
44 Vice President, General Counsel and Secretary of
NACCO, Vice President, General Counsel and Secretary
of NACoal (from prior to 2015)
From prior to 2015 to September 2017, Assistant
Secretary of HBB and KC.
Miles B. Haberer
53 Associate General Counsel of NACCO (from prior to
2015), Associate General Counsel, Assistant Secretary of
NACoal (from prior to 2015) and President, North
American Coal Royalty Company (an NACoal
subsidiary) (from September 2015)
From prior to 2015 to September 2015, Director-Land of
NACoal. From prior to 2015 to September 2015,
Assistant Secretary of NACCO.
Sarah E. Fry
44 Associate General Counsel and Assistant Secretary of
NACCO (from May 2017), Associate General Counsel
and Assistant Secretary of NACoal (from May 2017)
From January 2015 to April 2017, Senior Counsel,
Locke Lord (law firm).
Thomas A. Maxwell
42 Vice President - Financial Planning and Analysis and
Treasurer (from September 2017)
From September 2015 to September 2017, Director of
Financial Planning and Analysis and Assistant Treasurer.
From January 2014 to September 2015, Senior Manager,
Finance and Assistant Treasurer.
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
Name
Eric A. Dale
Age Current Position
Other Positions
45
Treasurer and Senior Director, Financial Planning and
Analysis, of NACoal (from January 2017)
From prior to 2015 to November 2016, Vice President of
Financial Planning and Analysis at Westmoreland Coal
Company.
Carroll L. Dewing
63 Vice President - Operations of NACoal (from January
2017)
Andrew B. Hart
41 Controller of NACoal (from September 2019)
LaVern K. Lund
47 Vice President - Engineering and Business Development
(from April 2019)
J. Patrick Sullivan, Jr.
61 Vice President and Chief Financial Officer of NACoal
(from prior to 2015)
From prior to 2015 to December 2016, President, The
Coteau Properties Company (an NACoal subsidiary).
From prior to 2015 to December 2016, Vice President -
North Dakota, Texas and Florida Operations, Human
Resources and External Affairs of NACoal.
From November 2017 to August 2019, Assistant
Controller of NACoal. From prior to 2015 to October
2017, Assistant Controller at Rowan Companies, plc.
From May 2017 to March 2019, Vice President -
Business Development. From prior to 2015 to April
2017, President of Liberty.
20
Item 1A. RISK FACTORS
Termination of or default under long-term mining contracts could materially reduce the Company's profitability.
Substantially all of the Coal Mining segment's profits are derived from long-term mining contracts. Although the Company has
long-term contracts, numerous political and regulatory authorities, along with well-funded environmental activist groups, are
devoting substantial resources to anti-coal activities to minimize or eliminate the use of coal as a source of electricity
generation. As a result of such activities, the Coal Mining segment's customers could prematurely retire certain coal-
fired generating units. Any customers' premature plant closure could have a material adverse effect on the Company’s business,
financial condition and results of operations.
During the first quarter of 2020, Great River Energy, Falkirk's customer, announced that it was evaluating the economics of the
Coal Creek Station ("CCS") power plant. The Company has a mining contract to supply coal to CCS that expires in 2045. Any
decision by Great River Energy to reduce operations or prematurely close CCS would have a material adverse effect on the
Company’s results of operations.
The loss of, or significant reduction in, purchases by our largest coal customers could adversely affect our business,
financial condition, results of operation and cash flows.
For the year ended December 31, 2019, the Coal Mining segment derived approximately 60% of earnings of unconsolidated
operations from two customers, Basin Electric Power Cooperative and Great River Energy. There are inherent risks whenever a
significant percentage of total earnings are concentrated with a limited number of customers. Earnings from the Coal Mining
segment's largest customers may fluctuate from time to time based on numerous factors, including market conditions and the
realignment of customers' power generation portfolios that reduce the electric power generated from coal, which may be
outside of the Company's control. If any of the Coal Mining segment's largest customers experience declining demand due to
market, economic or competitive conditions, it could have an adverse effect on the Company's profitability, cash flows and
financial position. In addition, if any customers were to significantly reduce their purchases of coal from us, the Company's
business, financial condition, results of operations and cash flows could be adversely affected.
Mississippi Lignite Mining Company ("MLMC") is subject to risks associated with its capital investment, operating
and equipment costs, growing use of alternative generation that competes with coal fired generation, changes in
customer demand and inflationary adjustments.
The profitability of MLMC is subject to the risk of loss of investment in this operation, increases in the cost of mining, changes
in customer demand, growing competition from alternative generation that competes with coal-fired generation and the
emergence of adverse mining conditions. At MLMC, the costs of mining operations are not reimbursed by MLMC's customer.
As such, increased costs at MLMC or decreased revenues could materially reduce the Company's profitability. Any reduction
in customer demand at MLMC would adversely affect the Company's operating results and could result in significant
impairments. In addition, MLMC sells lignite at contractually agreed upon prices which are subject to changes in the level of
established indices over time. The price of diesel fuel is heavily-weighted among these indices. As such, a substantial decline
in diesel prices could materially reduce MLMC's profitability, as the decline in revenue will only be partially offset by the
effect of lower diesel prices on production costs.
MLMC delivers coal to the Red Hills Power Plant in Ackerman, Mississippi. The Red Hills Power Plant supplies electricity to
TVA under a long-term PPA. MLMC’s contract with its customer runs through 2032. TVA’s power portfolio includes coal,
nuclear, hydroelectric, natural gas and renewables. In 2019, TVA published its updated Integrated Resource Plan ("IRP"). The
IRP indicates TVA plans to increase its reliance on solar power. A decrease in the number of days TVA dispatches the Red Hills
Power Plant would reduce MLMC's customer's demand for coal. The decision of which power plants to dispatch is determined
by TVA. TVA has dispatched Red Hills Power Plant at a lower rate in the last two years than in prior years.
Choctaw Generation Limited Partnership ("CGLP") leases the Red Hills Power Plant from a Southern Company subsidiary
pursuant to a leveraged lease arrangement. The ability of the lessee to make required payments to the Southern Company
subsidiary is dependent on the operational performance of the Red Hills Power Plant. Southern Company recently publicly
disclosed that while all CGLP lease payments have been paid in full through December 31, 2019, operational and other risks
have resulted in cash liquidity challenges at the Red Hills Power Plant, and based on current forecasts of energy prices in the
years following the expiration of the PPA in 2032, concerns exist regarding the lessee's ability to make the remaining semi-
annual lease payments through the end of the lease term in 2047. Southern Company concluded that it is no longer probable
that all of the payments will be received over the term of the lease and therefore recognized an impairment charge in the fourth
quarter of 2019. If any future lease payment is not paid in full, the Southern Company subsidiary may be unable to make its
corresponding payment to the holders of the underlying non-recourse debt related to the Red Hills Power Plant. Failure to make
the required payment to the debtholders could represent an event of default that would give the debtholders the right to
21
foreclose on, and take ownership of, the Red Hills Power Plant from the Southern Company subsidiary. A foreclosure of the
Red Hills Power Plant could have a material adverse effect on MLMC's financial condition, results of operations and cash
flows.
Similar to the Company's unconsolidated mines, all production costs at MLMC are capitalized into inventory and recognized in
cost of sales as tons are delivered. In periods of limited or no deliveries, MLMC may be required to reduce its inventory
carrying value using the lower of cost or net realizable value approach, which could adversely affect MLMC’s results of
operations.
Changes in customer demand for any reason, including, but not limited to, dispatch of power generated by other energy sources
ahead of coal, fluctuations in demand due to unanticipated weather conditions, regulations or comparable policies which may
promote planned and unplanned outages at the Red Hills Power Plant, economic conditions, including an economic slowdown
and a corresponding decline in the use of electricity, governmental regulations and inflationary adjustments could have a
material adverse effect on MLMC's financial condition, results of operations and cash flows.
The Coal Mining segment's Unconsolidated Subsidiaries are subject to risks created by changes in customer demand
and inflationary adjustments.
The contracts with the Unconsolidated Subsidiaries customers are primarily based on a "management fee" approach, whereby
compensation includes reimbursement of all operating costs, plus a fee based on the amount of coal delivered. The fees earned
adjust over time in line with various indices which reflect general U.S. inflation rates. During the production stage, the
Unconsolidated Subsidiaries' customers pay the Company its agreed upon fee only for the coal delivered to them for
consumption or use. As a result, reduced coal usage by customers for any reason, including, but not limited to, fluctuations in
demand due to unanticipated weather conditions, scheduled and unscheduled outages at the Coal Mining segment's customers'
facilities, unplanned equipment failures, economic conditions or governmental regulations or comparable policies which may
promote dispatch of power generated by renewables, such as wind or solar, and the realignment of customers' power generation
portfolios that reduce the electric power generated from coal could have a material adverse effect on the Company's results of
operations. Because of the contractual price formulas for the management fees at these Unconsolidated Subsidiaries, the
profitability of these operations is also subject to fluctuations in inflationary adjustments (or lack thereof) that can impact the
agreed upon management fees. These factors could materially reduce the Company's profitability.
Changes in coal consumption patterns of U.S. electric power generators could adversely affect the Company's
profitability.
The amount of coal consumed by the electric power generation industry is affected by general economic conditions; overall
demand for electricity; availability of transmission; competition from alternative fuel sources for power generation, such as
natural gas, nuclear, hydroelectric, wind and solar power, and the location, availability, quality and price of those alternative
fuel sources; environmental and other governmental regulations, including those impacting coal-fired power plants; and energy
conservation efforts and related governmental policies.
Changes in the utility and coal mining industry that affect our customers could also adversely affect the Company. Lower
natural gas prices and increased availability of renewables have contributed to a reduction in demand for coal-fired electric
power generation. Competition from natural gas-fired plants that are relatively more efficient, less expensive to construct and
less difficult to permit than coal-fired plants has the most potential to continue to displace a significant amount of coal-fired
electric power generation in the near term. Federal and state mandates for increased use of electricity derived from renewable
energy sources have also adversely affected demand for coal-fired electric power generation. Such mandates make alternative
fuel sources more competitive with coal-fired electric power generation.
A decrease in coal consumption by the electric power generation industry and the Company’s customers could have a material
adverse effect on the Company’s business, financial condition and results of operations.
Government regulations could impose costly requirements on the Company and its customers.
The coal mining industry and the electric generation industry are subject to extensive regulation by federal, state and local
authorities on matters concerning the health and safety of employees, land use, permit and licensing requirements, air and water
quality standards, plant and wildlife protection, reclamation and restoration of mining properties after mining, the discharge of
GHGs and other materials into the environment, surface subsidence from underground mining and the effects that mining has
on groundwater quality and availability. Legislation mandating certain benefits for current and retired coal miners also affects
the industry. Mining operations require numerous governmental permits and approvals. The Company is required to prepare
and present to federal, state or local authorities data pertaining to the impact the production and combustion of coal may have
upon the environment. The public, including non-governmental organizations, opposition groups and individuals, have
22
statutory rights to comment upon and submit objections to requested permits and approvals and to legally challenge certain
permits subsequent to their issuance. Compliance with these requirements is costly and time-consuming and may delay
commencement or continuation of development or production. New legislation and/or regulations and orders may materially
adversely affect the Company's mining operations or its cost structure, or its customers. All of these factors could significantly
reduce the Company's profitability. See “Item 1. Business — Government Regulation" on page 14 in this Form 10-K for
further discussion.
The Company is subject to burdensome federal and state mining regulations and the assumptions underlying the
Company's reclamation and mine closure obligations could be materially inaccurate.
Federal and state statutes require the Company to restore mine property in accordance with specified standards and an approved
reclamation plan, and require that the Company obtain and periodically renew permits for mining operations. Regulations
require the Company to incur the cost of reclaiming current mine disturbance at operations where the Company holds the
mining permit. Estimates of the Company's total reclamation and mine closing liabilities are based upon permit requirements
and the Company's engineering expertise related to these requirements. While management regularly reviews the estimated
reclamation liabilities and believes that appropriate accruals have been recorded for all expected reclamation and other costs
associated with closed mines, the estimate can change significantly if actual costs vary from assumptions or if governmental
regulations change significantly. Such changes could have a material adverse effect on the Company’s business and could
significantly reduce its profitability.
The Clean Air Act and the Affordable Clean Energy Rule could reduce the demand for coal.
The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including carbon
dioxide, sulfur dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA, ACE and the corresponding state
laws that extensively regulate the emissions of materials into the air affect coal mining operations both directly and indirectly.
Direct impacts on coal mining operations occur through CAA permitting requirements and/or ACE emission control
requirements relating to air contaminants, especially particulate matter. Indirect impacts on coal mining operations occur
through regulation of the air emissions of carbon dioxide, sulfur dioxide, nitrogen oxides, mercury, particulate matter and other
compounds emitted by coal-fired power plants. The EPA has promulgated or proposed regulations that impose tighter emission
restrictions on a number of these compounds, some of which are currently subject to litigation. The general effect of tighter
restrictions is to reduce demand for coal. A reduction in coal’s share of the capacity for power generation could have a material
adverse effect on the Company’s business, financial condition and results of operations. See “Item 1. Business — Government
Regulation" on page 14 in this Form 10-K for further discussion.
The Company has experienced growth in its NAMining business in recent periods and it may not be able to sustain or
manage future growth effectively.
The Company has expanded its overall NAMining business, operations and headcount in recent periods. NAMining’s operating
expenses may continue to increase as the Company scales the NAMining business, including in expanding business
development capabilities outside of Florida and in providing general and administrative resources to support NAMining’s
growth. As NACCO continues to grow the NAMining business, the Company must effectively integrate, develop and motivate
new employees, as well as existing employees who are promoted or moved into new roles, while maintaining the effectiveness
of its business execution. In part, NAMining’s success depends on its ability to integrate new customers in an efficient and
effective manner. The Company anticipates that it will continue to incur costs and capital expenditures associated with future
growth prior to realizing the full measure of anticipated long-term benefits, and the return on these investments may be lower,
may develop more slowly than expected or may never be realized. If the Company is unable to manage this growth effectively,
the Company may not be able to take advantage of market opportunities. The Company may also fail to execute on its business
plan or respond to competitive pressures, any of which could adversely affect the NAMining business, operating results and
financial condition.
Property and casualty insurance is increasingly expensive, contains more stringent terms and may be difficult to obtain
in the future.
Property and casualty insurance coverage is expensive and from time to time may be difficult or impossible to obtain. The
Company's insurance policies are subject to annual review by its insurers and policies may not be renewed at all or on similar
or favorable terms. Because the Company is involved in the coal mining industry, insurance carriers may decide not to insure us
in the future. In addition, if the Company makes significant insurance claims, its ability to obtain future insurance coverage at
commercially reasonable rates could be materially adversely affected. An inability to obtain property and casualty insurance,
significant increases in the cost of insurance the Company obtains, or losses in excess of its liability insurance coverage, could
have a material adverse effect on the Company's operating results and financial condition.
23
The Company has no control over the timing of the development and operation of its natural gas, oil and coal reserves
extracted by third parties.
The Company owns mineral interests and royalty interests in seven states in the continental United States. The Company does
not develop oil and gas reserves and is not a natural gas and oil producer. The Company derives income from royalty-based
leases under which lessees make payments to the Company based on their sale of natural gas and, to a lesser extent, oil and
coal. In recent years, a significant portion of the Minerals Management segment's income has been derived from lease signing
bonus and production payments associated with assets in the Utica Shale in Ohio and future royalty-based income is dependent
on the number of gas wells being developed and operated on the Company’s mineral acreage in Ohio. See “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 30 in this Form
10-K for further discussion. The decision to pursue development and operation of oil and gas wells is made by third-party
operators, not by the Company, and depends on a number of factors outside of the Company's control, including fluctuations in
commodity prices (primarily natural gas), regulatory risk, the Company's lessees' willingness and ability to incur well-
development and other operating costs, and changes in the availability and continuing development of infrastructure. Lower
commodity prices may reduce the amount of oil and natural gas that third-party operators can produce economically. Natural
gas wells have high initial production rates and follow a natural decline before settling into relatively stable, long-term
production. Decline rates can vary due to factors like well depth, well length, formation pressure, and facility design. In
addition to the natural production decline curve, royalty income can fluctuate in response to a number of factors outside of the
Company's control, including the number of wells being operated by third parties, fluctuations in commodity prices (primarily
natural gas), fluctuations in production rates associated with operator decisions, regulatory risks, the Company's lessees'
willingness and ability to incur well-development and other operating costs, and changes in the availability and continuing
development of infrastructure. Any of these risks could materially reduce the Company’s expected royalty income and the
Company’s profitability.
Mining operations are vulnerable to weather and other conditions that are beyond the Company's control.
Many conditions beyond the Company's control can decrease the delivery, and therefore the use, of coal to the Company's
customers. These conditions include weather, adverse mining conditions, unexpected maintenance problems and shortages of
replacement parts, which could significantly reduce the Company's profitability.
The Coal Mining Segment's customer's operations require significant capital expenditures
Maintaining power plants requires significant capital expenditures. Any delay or reduction in making capital expenditures to
maintain or upgrade coal-fired power plants by the Coal Segment's customers, principally electric utilities, could result in an
increase in outage days and a corresponding decrease in coal consumption. A decrease in coal consumption could have a
material adverse effect on the Coal Mining segment's financial condition, results of operations and cash flows.
Long-lived and intangible assets could become impaired.
The Company reviews long-lived assets, including property, plant and equipment and amortizing intangible assets, for
impairment whenever changes in circumstances or events may indicate that the carrying amounts are not recoverable. Factors
which may cause an impairment of long-lived assets include significant changes in the manner of use of these assets, negative
industry or market trends, significant underperformance relative to historical or projected future operating results, or a likely
sale or disposal of the asset before the end of its estimated useful life.
The Company is subject to the high costs and risks involved in the development of new mining projects.
From time to time, the Company seeks to develop new mining projects, including the Thacker Pass project. The costs and risks
associated with such projects can be substantial. New mining projects can take up to several years to complete, are complex
and require significant capital expenditures. These projects are subject to significant risks, including delays, extreme weather
events, unexpected increases in the cost of required materials, and disputes with third party providers of materials, equipment
or services, and a completed project may not yield the anticipated operational or financial benefit, any of which could have a
material adverse effect on the Company’s business, financial condition and results of operations.
Estimates of the Company's recoverable coal reserves involve uncertainties, and inaccuracies in these estimates could
result in lower than expected revenues, higher than expected costs, decreased profitability and asset impairments.
The Company estimates recoverable coal reserves based on engineering and geological data assembled and analyzed by
internal and, less frequently, external engineers and geologists. The Company's estimates as to the quantity and quality of the
coal in its reserves are updated annually to reflect production of coal from the reserves and new drilling, engineering or other
data. These estimates depend upon a variety of factors and assumptions, many of which involve uncertainties and factors
24
beyond the Company's control, such as geological and mining conditions that may not be fully identified by available
exploration data or that may differ from experience in current operations.
For these reasons, estimates of the recoverable quantities and qualities attributable to any particular group of properties,
classifications of reserves based on risk of recovery and estimates of net cash flows expected from particular reserves may vary
substantially. In addition, coal tonnage recovered from identified reserve areas or properties and revenues and expenditures
with respect to the Company's reserves may vary materially from estimates. Accordingly, the Company's estimates may vary
from the actual reserves. Any inaccuracy in the reserve estimates could result in lower than expected revenues, higher than
expected costs, decreased profitability and asset impairments.
A defect in title or the loss of a leasehold interest in certain property could limit the Company's ability to mine coal
reserves or result in significant unanticipated costs.
The Company conducts a significant part of its coal mining operations on leased properties. A title defect or the loss of a lease
could adversely affect the ability to mine the associated coal reserves. The Company may not verify title to leased properties or
associated coal reserves until the Company has committed to developing those properties or coal reserves. The Company may
not commit to develop property or coal reserves until the Company has obtained necessary permits and completed exploration.
As such, the title to property that the Company intends to lease or mine may contain defects prohibiting the ability to conduct
mining operations. Similarly, leasehold interests may be subject to superior property rights of third parties. In order to conduct
mining operations on properties where these defects exist, the Company may incur unanticipated costs. In addition, some leases
require the Company to produce a minimum quantity of coal and/or pay minimum production royalties. The Company's
inability to satisfy those requirements may cause the leasehold interest to terminate.
Certain U.S. federal income tax deductions currently available with respect to coal mining and production may be
eliminated.
From time to time, legislation is proposed that could result in the reduction or elimination of certain U.S. federal income tax
provisions currently available to companies engaged in the exploration, development, and production of coal reserves,
including the percentage depletion allowance with respect to coal properties. No legislation with that effect has been proposed,
but the elimination of those provisions would have a material adverse effect on the Company’s business, financial condition
and results of operations.
Certain of the Coal Segment’s customers benefit or have benefited from a tax credit under Section 45 of the Internal Revenue
Code. The benefit results in a reduction to the cost of coal-fired electric power generation. The elimination or expiration of the
Section 45 tax credit would increase the cost of the coal-fired electric power generation from these facilities and could result in
the power being less economical than other sources of power generation, which could reduce demand and result in a decrease
in coal consumption. A decrease in coal consumption by the Company’s customers could have a material adverse effect on the
Company’s business, financial condition and results of operations.
The Company’s business could suffer if NACCO’s information technology systems are disrupted, cease to operate
effectively or if the Company experiences a security breach, a cyber incident or cyber attack.
The Company relies on information technology systems to operate its business and to record and process transactions; respond
to customer inquiries; purchase supplies; deliver inventory on a timely basis; and maintain cost-efficient operations. Despite
the Company's efforts, the Company’s information technology systems may be vulnerable from time to time to damage or
interruption from computer viruses, power outages, third-party intrusions and other technical malfunctions.
Through the Company’s business operations, the Company collects and stores confidential information from its customers and
vendors and personal information and other confidential information from its employees. Although the Company has taken steps
designed to safeguard such information, there can be no assurance that such information will be protected against unauthorized
access, use or disclosure. Unauthorized parties may penetrate the Company’s or its vendors’ network security and, if successful,
misappropriate such information. Additionally, methods to obtain unauthorized access to confidential information change
frequently and may be difficult to detect, which can impact the Company’s ability to respond appropriately.
The Company could be subject to liability for failure to comply with privacy and information security laws, for failing to
protect personal information or for failing to respond appropriately. Loss, unauthorized access to, or misuse of confidential or
personal information could disrupt the Company’s operations, damage the Company’s reputation, and expose the Company to
claims from customers, financial institutions, regulators, employees and other persons, any of which could have an adverse
effect on the Company’s business, financial condition and results of operations.
25
Security breaches, cyber incidents or cyber attacks could include, among other things, computer viruses, malicious or destructive
code, ransomware, social engineering attacks (including phishing and impersonation), hacking, denial of service attacks and other
attacks.
Like many other companies, the Company is the target of malicious cyber-attack attempts in the normal course of business.
Cybersecurity incidents involving businesses and other institutions are on the rise. Cyber threats are rapidly evolving and those
threats and the means for obtaining access to information in digital and other storage media are becoming increasingly
sophisticated. Cyber threats and cyber-attackers can be sponsored by nation states or sophisticated criminal organizations or be
the work of hackers.
As cyber threats evolve and become more difficult to detect and successfully defend against, one or more cyber-attacks might
defeat the Company's or a third-party service provider's security measures in the future. Employee error or other irregularities
may also result in a failure of security measures and a breach of information systems. Moreover, hardware, software or
applications the Company may use have inherent defects of design, manufacture or operations or could be inadvertently or
intentionally implemented or used in a manner that could compromise information security.
A security breach and loss of information may not be discovered for a significant period of time after it occurs. Any
compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable
business data, or a disruption of the Company's business. A security breach involving the misappropriation, loss or other
unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage
customer relationships and the Company's reputation, and result in fines, fees, or liabilities, which may not be covered by
insurance policies. The Company is continuously installing new and upgrading existing information technology systems. The
Company uses employee awareness training around phishing, malware, and other cyber risks. The Company believes these
incidents are likely to continue and is unable to predict the direct or indirect impact of future attacks or breaches to business
operations.
The Company is dependent on key personnel and the loss of these key personnel could significantly reduce its
profitability.
The Company is highly dependent on the skills, experience and services of its key personnel and the loss of key personnel
could have a material adverse effect on its business, operating results and financial condition. Employment and retention of
qualified personnel is important to the successful conduct of the Company's business. Therefore, the Company's success also
depends upon its ability to recruit, hire, train and retain skilled and experienced management personnel. The Company's
inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business
effectively and could significantly reduce its profitability.
The amount and frequency of dividend payments made on NACCO's common stock could change.
The Board of Directors has the power to determine the amount and frequency of the payment of dividends. Decisions regarding
whether or not to pay dividends and the amount of any dividends are based on earnings, capital and future expense
requirements, financial conditions, contractual limitations and other factors the Board of Directors may consider. Accordingly,
holders of NACCO's common stock should not rely on past payments of dividends in a particular amount as an indication of
the amount of dividends that will be paid in the future.
The Company’s operations could be disrupted by natural or human causes beyond its control
The Company’s operations are subject to disruption from natural or human causes beyond its control, including physical risks
from hurricanes, severe storms, floods and other forms of severe weather, accidents, fires, earthquakes, terrorist acts and
epidemic or pandemic diseases such as the coronavirus, any of which could result in suspension of operations or harm to people
or the environment. While all of the Company’s operations are located in the United States, the Company participates in a
global supply chain, and if a disease spreads sufficiently to cause a pandemic (or to cause the fear of a pandemic to rise) or
governments regulate or restrict the flow of labor or products or impede the travel of Company personnel, the Company’s
ability to conduct normal business operations could be impacted which could adversely affect the Company’s results of
operations and liquidity.
The Company’s stock repurchase program could affect the price of NACCO’s common stock and increase volatility and
may not enhance long-term shareholder value.
The Company’s Board of Directors has authorized a stock repurchase program. The timing and amount of any repurchases under
the stock repurchase program are determined at the discretion of the Company's management based on a number of factors,
including the availability of capital, other capital allocation alternatives, market conditions for the Company's Class A Common
26
Stock and other legal and contractual restrictions. The stock repurchase program does not require the Company to acquire any
specific number of shares and may be modified, suspended, extended or terminated by the Company without prior notice and may
be executed through open market purchases, privately negotiated transactions or otherwise.
Repurchases under the stock repurchase program could affect the price of the Company's Class A Common Stock. The existence
of a stock repurchase program could cause the price of the Company's Class A Common Stock to be higher than it would be in
the absence of such a program and could potentially reduce the market liquidity for the Company’s Class A common stock. There
can be no assurance that any stock repurchases will enhance shareholder value because the market price of the Company’s Class
A common stock may decline below the levels at which the Company repurchased the shares. Although the stock repurchase
program is intended to enhance long-term shareholder value, there is no assurance that it will do so and short-term price fluctuations
in the Class A common stock could reduce the program’s effectiveness. Furthermore, the stock repurchase program does not
obligate the Company to repurchase any dollar amount or number of shares of the Company's Class A common stock, and it may
be suspended or discontinued at any time and any suspension or discontinuation could cause the market price of the Company's
Class A common stock to decline.
The price of NACCO's securities may be volatile.
The price of the Company's common stock may fluctuate due to a variety of market and industry factors that may materially
reduce the market price of NACCO's common stock regardless of operating performance, including, among others: (i) actual or
anticipated fluctuations in the Company's quarterly and annual results and those of other public companies in the industry; (ii)
industry cycles and trends; (iii) changes in government regulation; (iv) potential or actual military conflicts or acts of terrorism;
(v) announcements concerning NACCO or its competitors; (vi) lack of trading liquidity; and (vii) the general state of the
securities market. In addition, the stock market in general has experienced significant volatility that often has been unrelated to
the operating performance of companies whose shares are traded. These market fluctuations could adversely affect the trading
price of our common stock, regardless of NACCO's actual operating performance. As a result of all of these factors, investors
in the Company's common stock may not be able to resell their stock at or above the price they paid or at all. Further, NACCO
could be the subject of securities class action litigation due to any such stock price volatility, which could divert management’s
attention and have a material adverse effect on the Company's operating results.
NACCO's certificate of incorporation and by-laws include provisions that may discourage a takeover attempt.
Provisions contained in the Company's certificate of incorporation and by-laws and Delaware law could make it more difficult
for a third-party to acquire us, even if doing so might be beneficial to NACCO's stockholders. Provisions of the Company's by-
laws and certificate of incorporation impose various procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. These provisions could limit the price that certain investors might be willing to
pay in the future for shares of NACCO's common stock and may have the effect of delaying or preventing a change in control.
NACCO is a smaller reporting company and cannot be certain if the reduced disclosure requirements applicable to
smaller reporting companies will make the Company's common stock less attractive to investors.
The Company is currently a “smaller reporting company” as defined in the Securities Exchange Act of 1934, and thus allowed
to provide simplified executive compensation disclosures and other decreased disclosure in SEC filings. The reduced
disclosures may make it more difficult to compare the Company's performance with other public companies.
NACCO cannot predict whether investors will find our common stock less attractive because of these exemptions. If some
investors find NACCO's common stock less attractive as a result, there may be a less active trading market for the Company's
common stock and the stock price may be more volatile.
The Company may be subject to risk relating to increasing cash requirements of certain employee benefits plans, which
may affect its financial position.
Although as of December 31, 2019, the Company's consolidated defined benefit pension plans are frozen and no longer provide
for the accrual of future benefits, the expenses recorded for, and cash contributions required to be made to its defined benefit
pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual
investment returns. Significant changes in U.S. pension funding regulations, market interest rates, decreases in the value of
plan assets or investment losses on plan assets may require the Company to increase the cash contributed to defined benefit
pension plans which may affect its financial position.
27
The Company may become subject to claims under foreign laws and regulations, which may be expensive, time
consuming and distracting.
The Company is subject to the laws and the court systems of multiple jurisdictions. The Company may become subject to
claims outside the U.S. for violations or alleged violations of laws with respect to past or future foreign operations of NACCO.
In addition, these laws may be changed or new laws may be enacted in the future. International litigation is often expensive,
time consuming and distracting. As a result, any of these risks could significantly reduce the Company's profitability and its
ability to operate its businesses effectively.
Certain members of the Company's extended founding family own a substantial amount of its Class A and Class B
common stock and, if they were to act in concert, could control the outcome of director elections and other stockholder
votes on significant corporate actions.
The Company has two classes of common stock: Class A common stock and Class B common stock. Holders of Class A
common stock are entitled to cast one vote per share and, as of December 31, 2019, accounted for approximately 26 percent of
the voting power of the Company. Holders of Class B common stock are entitled to cast ten votes per share and, as of
December 31, 2019, accounted for the remaining voting power of the Company. As of December 31, 2019, certain members of
the Company's extended founding family held approximately 34 percent of the Company's outstanding Class A common stock
and approximately 98 percent of the Company's outstanding Class B common stock. On the basis of this common stock
ownership, certain members of the Company's extended founding family could have exercised 82 percent of the Company's
total voting power. Although there is no voting agreement among such extended family members, in writing or otherwise, if
they were to act in concert, they could control the outcome of director elections and other stockholder votes on significant
corporate actions, such as certain amendments to the Company's certificate of incorporation and sales of the Company or
substantially all of its assets. Because certain members of the Company's extended founding family could prevent other
stockholders from exercising significant influence over significant corporate actions, the Company may be a less attractive
takeover target, which could adversely affect the market price of its common stock.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
NACCO leases office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio, which serves as its corporate
headquarters.
NACoal leases its corporate headquarters office space in Plano, Texas.
NAMining leases office and warehouse space in Medley, Florida.
Proven and probable coal reserves and deposits are estimated at approximately 2.0 billion tons (including the Unconsolidated
Subsidiaries), all of which are lignite coal deposits, except for approximately 84.0 million tons of bituminous coal. Reserves are
estimates of quantities of coal, made by the Company's geological and engineering staff, which are considered mineable in the
future using existing operating methods. Developed reserves are those which have been allocated to mines which are in
operation; all other reserves are classified as undeveloped. Information concerning mine type, reserve data and coal quality
characteristics are set forth on the table on pages 7 and 8 under “Item 1. Business.”
Item 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material legal proceeding other than ordinary routine litigation
incidental to its respective business.
Item 4. MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of The Dodd-Frank Act
and Item 104 of Regulation S-K is included in Exhibit 95 filed with this Form 10-K.
28
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
NACCO's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.” Because of
transfer restrictions, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The
Class B common stock is convertible into Class A common stock on a one-for-one basis.
At December 31, 2019, there were 708 Class A common stockholders of record and 139 Class B common stockholders of
record.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities (1)
(a)
Total
Number of
Shares
Purchased
(b)
Average
Price Paid
per Share
—
23,959
9,562
33,521
$
$
$
$
—
47.94
47.28
47.75
Period
October 1 to 31, 2019
November 1 to 30, 2019
December 1 to 31, 2019
Total
(c)
Total Number
of Shares
Purchased as
Part of the
Publicly
Announced
Program
(d)
Maximum
Number of Shares
(or Approximate
Dollar Value) that
May Yet Be
Purchased Under
the Program (1)
—
23,959
9,562
33,521
$
$
$
$
22,295,747
24,114,170 (1)
23,662,079
23,662,079
(1)
On November 6, 2019, the Company's Board of Directors approved a stock purchase program ("2019 Stock Repurchase
Program") providing for the purchase of up to $25.0 million of the Company’s outstanding Class A Common Stock
through December 31, 2021. NACCO’s previous repurchase program would have expired on December 31, 2019 but
was terminated and replaced by the 2019 Stock Repurchase Program. See Note 12 to the Consolidated Financial
Statements in this Form 10-K for a discussion of the Company's stock repurchase programs.
Item 6. SELECTED FINANCIAL DATA
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not
required to provide this information.
29
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)
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of Operations include NACCO Industries, Inc.®
(the "parent company" or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”). NACCO is the public
holding company for The North American Coal Corporation®. The North American Coal Corporation and its affiliated
companies (collectively, “NACoal”) operate in the mining and natural resources industries through three operating segments:
Coal Mining, North American Mining ("NAMining") and Minerals Management. The Coal Mining segment operates surface
coal mines under long-term contracts with power generation companies and activated carbon producers pursuant to a service-
based business model. The NAMining segment provides value-added contract mining and other services for producers of
aggregates, lithium and other minerals. The Minerals Management segment promotes the development of the Company’s oil,
gas and coal reserves, generating income primarily from royalty-based lease payments from third parties.
The Company also has costs not directly attributable to a reportable segment which are not included as part of the
measurement of segment operating profit, primarily administrative costs related to public company reporting requirements, the
financial results of the Company’s mitigation banking business, Mitigation Resources of North America® (“MRNA”), and
Bellaire Corporation (“Bellaire”). MRNA generates and sells stream and wetland mitigation credits (known as mitigation
banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation. Bellaire manages the
Company’s long-term liabilities related to former Eastern U.S. underground mining activities.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's
current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause
actual results to differ materially from those described in these forward-looking statements are set forth below under the
heading “Forward-Looking Statements."
All financial statement line items below operating profit (other income, including interest expense and interest income, the
provision for income taxes and net income) are presented and discussed within this Form 10-K on a consolidated basis.
Included within other income on the line Income from other unconsolidated affiliates is the financial results of NoDak Energy
Services, LLC ("NoDak"). NoDak operates and maintains a coal drying system at a customer’s power plant. The NoDak
contract expired in the first quarter of 2020.
See “Item 1. Business" beginning on page 1 in this Form 10-K for further discussion of NACCO's subsidiaries. Additional
information relating to financial and operating data on a segment basis (including unallocated items) is set forth in Note 15 to
the Consolidated Financial Statements contained in this Form 10-K.
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 recognized when control of the promised goods or services is transferred to the
Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for
those goods or services. The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC")
Topic 606, "Revenue from Contracts with Customers", which NACCO adopted on January 1, 2018, using the modified
retrospective method. See Note 3 to the Consolidated Financial Statements in this Form 10-K for further discussion of the
impact of ASC 606 on the Company's revenue recognition.
30
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 close
its surface mines and reclaim the land it has disturbed as a result of its normal mining activities as well as for costs to
dismantle certain mining equipment at the end of the life of the mine. 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 cost 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 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 cost 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. See Note 7 to
the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's asset retirement obligations.
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.
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 using currently enacted tax rates. 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 effect of a change in tax
rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the
enactment date. Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make
assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and
tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the
calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes,
statutory tax law changes, or changes in the structure or tax status.
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. The Company assesses whether a valuation allowance should be established
against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely
than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected
future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income
require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying
businesses. 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
31
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)
resulting change to the provision for income taxes could have a material impact on the Company's results of operations and
financial position.
See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.
CONSOLIDATED FINANCIAL SUMMARY
The results of operations for NACCO were as follows for the years ended December 31:
Revenues:
Coal Mining
NAMining
Minerals Management
Unallocated Items
Eliminations
Total revenue
Operating profit (loss):
Coal Mining
NAMining
Minerals Management
Unallocated Items
Eliminations
Total operating profit
Interest expense
Interest income
Income from other unconsolidated affiliates
Closed mine obligations
(Gain) loss on equity securities
Other, net
Other (income) expense, net
Income before income tax provision
Income tax provision
Net income
2019
2018
$
68,701
42,823
30,119
790
(1,443)
$ 140,990
$
$
$
23,268
(696)
25,721
(9,729)
256
38,820
872
(3,616)
(1,300)
1,537
(1,545)
(527)
(4,579)
43,399
3,767
39,632
$
$
$
$
$
81,549
36,950
17,352
665
(1,141)
135,375
38,270
1,918
14,331
(10,473)
(422)
43,624
1,998
(865)
(1,276)
1,297
316
(9)
1,461
42,163
7,378
34,785
Effective income tax rate
8.7%
17.5%
The components of the change in revenues and operating profit are discussed below in "Segment Results."
Other (income) expense, net
North American Coal Corporation India Private Limited ("NACC India") was formed to provide technical business advisory
services to the third-party owner of a coal mine in India. During 2014, NACC India's customer defaulted on its contractual
payment obligations and as a result of this default, NACC India terminated its contract with the customer and began pursuing
contractual remedies. During the third quarter of 2019, the Company received payment of $2.7 million from NACC India's
customer, of which $1.4 million related to past invoices and has been reported on the line Other, net, and $1.3 million
represented interest income and has been reported on the line Interest income.
32
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)
Interest expense decreased $1.1 million due to lower average borrowings under NACoal's revolving credit facility during 2019
compared with 2018.
Interest income increased $2.8 million due to the interest income related to the NACC India customer payment and increased
income earned on invested cash during 2019 compared with 2018.
(Gain) loss on equity securities had improved returns on invested assets of Bellaire's Mine Water Treatment Trust during 2019
compared with 2018. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the
Mine Water Treatment Trust.
Other, net, increased $0.5 million due to the $1.4 million payment from NACC India's customer for past invoices, partially
offset by $0.9 million in settlement expense for the Combined Defined Benefit Plan. See Note 14 to the Consolidated
Financial Statements in this Form 10-K for further discussion of the Company's pension and postretirement expense.
Income Taxes
The Company’s effective income tax rate was 8.7% for the year ended December 31, 2019. The 2019 effective income tax rate
included a net discrete tax benefit of $2.5 million primarily resulting from changes in prior year estimates and the effective
settlement of certain discrete tax items from on-going examinations.
The Company’s effective income tax rate was 17.5% for the year ended December 31, 2018. The 2018 effective income tax
rate included $1.2 million of discrete tax expense primarily related to an additional valuation allowance provided against
deferred tax assets in India as the Company had previously determined that such deferred tax assets do not meet the more
likely than not standard for realization.
Excluding discrete items, the effective income tax rate would have been approximately 14.5% and 14.7% for the years ended
December 31, 2019 and 2018, respectively.
See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.
33
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:
Operating activities:
Net income
Depreciation, depletion and amortization
Deferred income taxes
Stock-based compensation
Gain on sale of assets
Other
Working capital changes
Net cash provided by operating activities
Investing activities:
Expenditures for property, plant and equipment
Proceeds from the sale of assets
Other
Net cash used for investing activities
2019
2018
Change
$
39,632
$
34,785
$
16,240
8,698
4,924
(206)
(7,071)
(9,433)
52,784
(24,664)
4,572
(170)
(20,262)
14,683
9,281
3,958
(892)
(7,612)
419
54,622
(20,930)
1,454
1,089
(18,387)
4,847
1,557
(583)
966
686
541
(9,852)
(1,838)
(3,734)
3,118
(1,259)
(1,875)
Cash flow before financing activities
$
32,522
$
36,235
$
(3,713)
The $1.8 million decrease in net cash provided by operating activities was primarily the result of unfavorable working capital
changes, partially offset by the increase in net income. Working capital changed unfavorably during 2019 primarily due to an
increase in inventory at MLMC as a result of a decrease in customer requirements. A decrease in accounts receivable from
affiliates during 2018, specifically attributable to payments from Hamilton Beach Brands Holding Company and Bisti Fuels
Company, LLC, that did not reoccur in 2019, also contributed to the unfavorable change in working capital.
The increase in net cash used for investing activities was primarily attributable to an increase in expenditures for property,
plant and equipment at MLMC and NAMining's operations in 2019 compared with 2018, partially offset by an increase in
proceeds from the sale of assets in 2019.
Financing activities:
Net additions (reductions) to long-term debt and revolving credit agreements
Cash dividends paid
Other
2019
2018
Change
$
13,258
(5,132)
(3,013)
(46,729) $
(4,578)
(1,271)
59,987
(554)
(1,742)
Net cash provided by (used for financing) activities
$
5,113
$
(52,578) $
57,691
The change in net cash provided by (used for) financing activities was primarily due to increased borrowings during 2019
compared to repayments of borrowings during 2018.
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)
Financing Activities
Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not guaranteed any borrowings of
NACoal. The borrowing agreements at NACoal allow for the payment to NACCO of dividends and advances under certain
circumstances. Dividends (to the extent permitted by NACoal's borrowing agreement) and management fees are the primary
sources of cash for NACCO and enable the Company to pay dividends to stockholders.
The Company believes funds available from cash on hand, the NACoal Facility and operating cash flows will provide
sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration
of the NACoal Facility.
NACoal has an unsecured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in August 2022.
Borrowings outstanding under the NACoal Facility were $16.0 million at December 31, 2019. At December 31, 2019, the
excess availability under the NACoal Facility was $132.6 million, which reflects a reduction for outstanding letters of credit of
$1.4 million.
The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of
debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on
the level of debt to EBITDA ratio achieved. The applicable margins, effective December 31, 2019, for base rate and LIBOR
loans were 0.75% and 1.75%, respectively. The NACoal Facility has a commitment fee which is based upon achieving various
levels of debt to EBITDA ratios. The commitment fee was 0.30% on the unused commitment at December 31, 2019. The
weighted average interest rate applicable to the NACoal Facility at December 31, 2019 was 5.50% including the floating rate
margin.
The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt
to EBITDA ratio of 3.00 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the
ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to
EBITDA ratio of 2.00 to 1.00, or if greater than 2.00 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction
with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million. At
December 31, 2019, NACoal was in compliance with all financial covenants in the NACoal Facility.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
NACCO
Planned
2020
Actual
2019
Actual
2018
$
33.2
$
24.7
$
20.9
Planned expenditures for 2020 are expected to be approximately $33 million, primarily consisting of $24 million in the Coal
Mining segment and $9 million in the NAMining segment. Capital expenditures are expected to be funded from internally
generated funds and/or bank borrowings.
In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at
MLMC as it develops a new mine area. In the NAMining segment, capital expenditures in 2020 are primarily for the
acquisition, relocation and refurbishment of draglines.
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)
Capital Structure
NACCO's consolidated capital structure is presented below:
Cash and cash equivalents
Other net tangible assets
Intangible assets, net
Net assets
Total debt
Closed mine obligations
Total equity
Debt to total capitalization
December 31
2019
$ 122,892
2018
Change
$
85,257
$
37,635
174,465
37,902
335,259
(24,943)
(20,924)
$ 289,392
156,703
40,516
282,476
(11,021)
(20,751)
$ 250,704
$
17,762
(2,614)
52,783
(13,922)
(173)
38,688
8%
4%
4%
The increase in net assets was primarily due to the increase in cash and cash equivalents. The increase in other net tangible
assets also contributed to the change in net assets, mainly due to an increase in property, plant and equipment.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of the Company as of December 31, 2019:
Contractual Obligations
NACoal Facility
Interest payments on NACoal Facility
Other debt
Other interest
Deferred compensation
Finance lease obligations
Operating leases
Purchase and other obligations
Total
2020
2021
2022
2023
2024
Thereafter
Payments Due by Period
$ 16,000
$
7,000
$
— $
9,000
$
— $
— $
1,362
10,317
69
681
567
26
13,465
13,465
657
19,193
43,737
567
2,193
43,737
495
567
26
—
37
2,149
—
186
567
17
—
37
2,175
—
—
567
—
—
16
1,685
—
—
567
—
—
—
1,661
—
—
—
7,482
—
—
—
9,330
—
Total contractual cash obligations
$ 104,800
$ 68,236
$
3,274
$ 11,982
$
2,268
$
2,228
$ 16,812
An event of default, as defined in the NACoal Facility and the Company’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,
2019 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 $0.2 million.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which is codified in ASC 842, Leases (“ASC 842”)
and supersedes current lease guidance in ASC 840. ASC 842 required a lessee to recognize a right-of-use asset and a
corresponding lease liability for substantially all leases beginning January 1, 2019 for NACCO. See Note 10 to the
Consolidated Financial Statements in this Form 10-K for further information on the Company's leases.
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
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)
result, pension and postretirement funding has not been included in the table above. The Company does not expect to
contribute to its pension plan in 2020. NACCO maintains one supplemental retirement plan that pays monthly benefits to
participants directly out of corporate funds and expects to pay benefits of approximately $0.6 million in 2020 and
approximately $0.5 million per year from 2021 through 2029. Benefit payments beyond that time cannot currently be
estimated. All other pension benefit payments are made from assets of the pension plan. NACCO also expects to make
payments related to its other postretirement plans of approximately $0.2 million per year from 2020 through 2029. Benefit
payments beyond that time cannot currently be estimated.
Not included in the table above, the Company has a long-term liability of approximately $2.5 million for unrecognized tax
benefits, including interest and penalties, as of December 31, 2019. 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.
NACCO has asset retirement obligations that are not included in the table above due to the uncertainty of the timing of
payments to settle this liability. See Note 7 to the Consolidated Financial Statements in this Form 10-K for further discussion
of the Company's asset retirement obligations.
NACoal is a party to certain guarantees related to Coyote Creek that are not included in the table above as the Company
believes that the likelihood of NACoal’s future performance under the guarantees is remote, and no amounts related to these
guarantees have been recorded. See Note 17 to the Consolidated Financial Statements in this Form 10-K for further discussion
of the Company's guarantees.
Off Balance Sheet Arrangements
The Company has not entered into any off balance sheet financing arrangements.
ENVIRONMENTAL MATTERS
The Company is affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the U.S.
Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition,
the Company closely monitors proposed legislation and regulation concerning SMCRA, CAA, ACE, CWA, RCRA, CERCLA
and other regulatory actions.
Compliance with these increasingly stringent regulations 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.
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)
SEGMENT RESULTS
COAL MINING SEGMENT
FINANCIAL REVIEW
Tons of coal delivered by the Coal Mining segment were as follows for the years ended December 31 (in millions):
Unconsolidated mines
Consolidated mines
Total tons delivered
Total coal reserves were as follows at December 31:
Unconsolidated mines
Consolidated mines
Total coal reserves
2019
2018
32.0
2.6
34.6
2019 (1)
2018
(in billions of tons)
1.0
1.0
2.0
35.5
3.0
38.5
0.9
1.0
1.9
(1)Amount includes 0.1 million of coal reserves owned or controlled by customers. The Company conducts activities to extract
these customer-owned and controlled reserves.
The results of operations for the Coal Mining segment were as follows for the years ended December 31:
Revenues
Cost of sales
Gross profit
Earnings of unconsolidated operations(a)
Selling, general and administrative expenses
Amortization of intangible assets
Gain on sale of assets
Operating profit
2019
2018
$
68,701
$
65,430
3,271
60,678
38,246
2,614
(179)
23,268
$
$
81,549
70,112
11,437
64,389
34,798
3,038
(280)
38,270
(a) See Note 17 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated
subsidiaries, including summarized financial information.
2019 Compared with 2018
The following table identifies the components of change in revenues for 2019 compared with 2018:
2018
Increase (decrease) from:
Consolidated operations
MLMC contractual settlements in 2018
2019
38
Revenues
$
81,549
(9,859)
(2,989)
68,701
$
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)
Revenues decreased 15.8% in 2019 compared with 2018 primarily due to a decrease in MLMC's tons delivered. MLMC
delivers coal to the Red Hills Power Plant, which supplies electricity to TVA under a long-term Power Purchase Agreement.
The decision of which power plants to dispatch is determined by TVA. The Red Hills power plant saw a decrease in the
number of days TVA dispatched the plant in 2019 compared with 2018. As a result of this reduction in customer demand, tons
delivered decreased in 2019 compared with 2018. MLMC's contractual settlements in 2018 related to resolution of its
customer’s tonnage-related payment obligations and coal pricing adjustments.
The following table identifies the components of change in operating profit for 2019 compared with 2018:
2018
Increase (decrease) from:
Revisions to Centennial's asset retirement obligation
Earnings of unconsolidated operations
Selling, general and administrative expenses
MLMC contractual settlements in 2018
Net gain on sale of assets
Amortization of intangibles
Gross profit, excluding asset retirement obligation revisions
2019
Operating Profit
38,270
$
(5,256)
(3,711)
(3,448)
(2,989)
(101)
424
79
23,268
$
Operating profit decreased $15.0 million in 2019 compared with 2018. The decrease was primarily the result of revisions to
Centennial's asset retirement obligation, a decrease in earnings of unconsolidated operations and an increase in selling, general
and administrative expenses, mainly due to higher employee-related and insurance costs.
The change in Centennial's asset retirement obligation is attributable to the absence of a $2.8 million favorable revision that
occurred during 2018 and a $2.5 million unfavorable revision during 2019. See Note 7 to the Consolidated Financial
Statements in this Form 10-K for further discussion of the Company's asset retirement obligations.
The decrease in earnings of unconsolidated operations was primarily due to fewer coal tons delivered as a result of changes in
customer demand, mainly related to the timing and duration of outages at certain customer facilities, partially offset by an
increase in coal tons delivered at Bisti. Coal deliveries at Bisti were reduced during the prior year while the power plant's
owners were installing additional environmental controls.
NORTH AMERICAN MINING ("NAMining") SEGMENT
FINANCIAL REVIEW
Tons of limestone delivered by the NAMining segment were as follows for the years ended December 31 (in millions):
Unconsolidated operations
Consolidated operations
Total tons delivered
2019
2018
8.3
36.4
44.7
7.0
39.0
46.0
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)
The results of operations for the NAMining segment were as follows for the years ended December 31:
Revenues
Cost of sales
Gross profit
Earnings of unconsolidated operations(a)
Selling, general and administrative expenses
Gain on sale of assets
Operating profit (loss)
2019
2018
$
42,823
$
41,698
1,125
3,205
5,053
(27)
(696) $
$
36,950
33,261
3,689
605
2,987
(611)
1,918
(a) See Note 17 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated
subsidiaries, including summarized financial information.
2019 Compared with 2018
Revenues
Despite the decrease in tons delivered at the consolidated operations, revenues increased 15.9% in 2019 compared with 2018,
primarily due to increased deliveries under fixed-price contract mining agreements.
The following table identifies the components of change in operating profit (loss) for 2019 compared with 2018.
2018
Increase (decrease) from:
Gross profit
Selling, general and administrative expenses
Net gain on sale of assets
Earnings of unconsolidated operations
2019
Operating Profit
(Loss)
$
1,918
(2,564)
(2,066)
(584)
2,600
(696)
$
NAMining reported an operating loss of $0.7 million in 2019 compared with operating profit of $1.9 million in 2018. The
change is primarily due to a decrease in gross profit, mainly due to higher labor, equipment repairs and supplies expenses. An
increase in selling, general and administrative expenses, which includes higher employee-related and business development
costs, also contributed to the change in operating profit (loss). These decreases were partially offset by an improvement in
earnings of unconsolidated operations, which benefited from increased customer requirements and increased deliveries under
fixed-price contract mining agreements.
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)
MINERALS MANAGEMENT SEGMENT
FINANCIAL REVIEW
The results of operations for the Minerals Management segment were as follows for the years ended December 31:
Revenues
Cost of sales
Gross profit
Selling, general and administrative expenses
Gain on sale of assets
Operating profit
2019 Compared with 2018
Revenues and Operating Profit
2019
2018
$
30,119
$
3,465
26,654
933
—
$
25,721
$
17,352
2,122
15,230
900
(1)
14,331
Revenues and operating profit increased in 2019 compared with 2018, primarily due to an increase in the number of wells
operated by third parties to extract natural gas from the Company's mineral reserves in Ohio. The number of producing wells
increased as operators increased activity on Minerals Management's reserves and additional pipeline, gas compression, and
other transportation infrastructure came online in southeast Ohio.
UNALLOCATED ITEMS AND ELIMINATIONS
FINANCIAL REVIEW
Unallocated Items and Eliminations were as follows for the years ended December 31:
Operating loss
2019 Compared with 2018
2019
$
(9,473) $
2018
(10,895)
The $1.4 million decrease in operating loss in 2019 compared with 2018 was primarily due to lower professional fees as 2018
included fees incurred for arbitration with a former customer.
NACCO Industries, Inc. Outlook
Coal Mining Outlook - 2020
In 2020, the Company expects coal deliveries to increase modestly compared with 2019. The anticipated increase in coal
deliveries is a result of an expected increase in customer demand, as the Company's customers are generally forecasting a
reduction in power plant outage days and an increase in the number of days dispatched in 2020.
Coal Mining operating profit is expected to increase in 2020 over 2019. This anticipated increase is primarily the result of an
expected increase in gross profit at MLMC, primarily in the first half of the year, and the absence of the $2.0 million
unfavorable adjustment to mine reclamation liabilities at Centennial in the fourth quarter of 2019. A modest improvement in
earnings at the unconsolidated Coal Mining operations is also expected to contribute to the increase in operating profit, but
these improvements are expected to be partly offset by an increase in operating expenses primarily from anticipated higher
professional fees and IT expenses.
The increase in gross profit at MLMC is expected to be driven by higher customer demand due to an anticipated increase in
the number of days the customer's power plant is expected to be dispatched in 2020. If customer demand at MLMC decreases
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)
from expected levels, it could unfavorably affect the Company's 2020 earnings, as reduced customer demand affected earnings
in 2019.
Capital expenditures are expected to be approximately $24 million in 2020. The Company expects high levels of capital
expenditures in 2020 and 2021 primarily related to anticipated spending at MLMC as it develops a new mine area. These
capital expenditures will result in an increase in depreciation that will unfavorably affect operating profit in future periods.
During the first quarter of 2020, Great River Energy, Falkirk's customer, announced that it is evaluating the economics of the
Coal Creek Station power plant. The Company has a management fee mining contract to supply coal to this plant that expires
in 2045. Any decision by Great River Energy to reduce operations or prematurely close this power plant would have a
material adverse effect on the Company’s results of operations. The mining contract specifies that Great River Energy is
responsible for all mine closure costs.
NAMining Outlook
In 2020, NAMining expects limestone deliveries to increase and full year operating results to improve significantly over 2019.
Operating profit is expected to benefit from earnings associated with new limestone mining contracts. The improvement in
operating profit is expected to be partly offset by an increase in operating expenses due to higher employee-related costs
associated with new mining operations.
Capital expenditures are expected to be $9 million in 2020, primarily for the acquisition, relocation and refurbishment of
draglines.
In 2019, NAMining, through a new subsidiary, Sawtooth Mining, LLC, entered into a mining agreement to serve as the
exclusive contract miner for the Thacker Pass lithium project, owned by Lithium Nevada, Corp., in northern Nevada.
Sawtooth Mining will provide comprehensive mining services, with responsibility for all aspects of the lithium mine, similar
to our typical scope of work in the Coal Mining segment. The mining agreement provides that Lithium Nevada will reimburse
Sawtooth for its operating and mine reclamation costs, and pay Sawtooth Mining a management fee per metric ton of lithium
delivered during the 20-year contract term. Lithium Nevada is in the process of securing permits and currently expects to
commence construction in 2021 and production of lithium products in 2023.
Minerals Management Outlook
The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the
Company based on their sale of natural gas and, to a lesser extent, oil, natural gas liquids and coal, extracted primarily by third
parties. The Company experienced a significant increase in royalty income in 2019 compared with 2018, primarily due to a
significant increase in the number of gas wells operated by third parties to extract natural gas from the Company's Ohio Utica
shale mineral reserves. Because new wells have high initial production rates and follow a natural decline before settling into
relatively stable, long-term production, royalty income in 2020 is expected to decrease and be substantially lower than 2019
levels. This decrease is expected to occur primarily in the first half of the year, particularly in the first quarter, as comparisons
are made to historically high revenue levels in the first half of 2019 associated with increased production levels in the early
stages of production from new wells. The reduction in royalty income is based on natural gas price expectations, fewer
expected new wells and the natural production decline that occurs early in the life of a well. Decline rates can vary due to
factors like well depth, well length, formation pressure and facility design.
In addition to the natural production decline curve, royalty income can fluctuate favorably or unfavorably in response to a
number of factors outside of the Company's control, including the number of wells being operated by third parties, fluctuations
in commodity prices (primarily natural gas), fluctuations in production rates associated with operator decisions, regulatory
risks, the Company's lessees' willingness and ability to incur well-development and other operating costs, and changes in the
availability and continuing development of infrastructure.
Consolidated Outlook
Overall, in 2020, NACCO expects a modest decrease in operating profit compared with 2019 mainly due to the substantial
decrease in Minerals Management's results and an increase in consolidated operating expenses, partly offset by expected
improvements in earnings at both the Coal Mining and NAMining segments.
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)
Consolidated net income in 2020 is expected to decrease compared with 2019, predominantly in the first half of the year,
mainly as a result of the anticipated reduction in Minerals Management operating profit, as well as the absence of $2.7 million
pre-tax received in 2019 associated with a prior India venture and the absence of a $2.5 million tax benefit recognized in the
fourth quarter of 2019. The 2020 full-year effective income tax rate is expected to be between 10% and 12%, based on the
anticipated mix of earnings and excluding discrete items.
In 2020, cash flow before financing activities is expected to decrease significantly from 2019 levels due to a significant
increase in capital expenditures and payment of deferred compensation and other payroll liabilities. Consolidated capital
expenditures are expected to be approximately $33 million in 2020 compared with $24.7 million in 2019.
One of the Company’s core strategies is to pursue activities which can strengthen the resiliency of its existing coal mining
operations. The Company works to drive down coal production costs and maximize efficiencies and operating capacity at
mine locations to help customers with management fee contracts be more competitive. This benefits both customers and the
Company's Coal Mining segment, as fuel cost is the major driver for power plant dispatch. Increased power plant dispatch
drives increased demand for coal by the Coal Mining segment's customers, just as lower dispatch reduces demand.
The Company continues to evaluate opportunities to expand its core coal mining business, however opportunities are likely to
be very limited. Low natural gas prices and growth in renewable energy sources, such as wind and solar, could continue to
unfavorably affect the amount of electricity dispatched from coal-fired power plants. The political and regulatory environment
is not generally receptive to development of new coal-fired power generation projects which would create opportunities to
build and operate new coal mines. However, the Company does continue to seek out and pursue opportunities where it can
apply its management fee business model to replace legacy operators of existing surface coal mining operations in the United
States. Outright acquisitions of existing coal mines or mining companies with exposure to fluctuating coal commodity
markets, or structures that would create significant leverage, are outside the Company’s area of focus.
The Company is focused on building a strong portfolio of affiliated businesses for diversified growth. It continues to expand
the scope of its business development activities related to growing NAMining beyond aggregates, by providing additional
mining services where the Company’s core mining skills can add value to customers of a broad range of minerals and
materials, including by providing comprehensive mining services, and expanding the range of contract mining services. The
Company is also considering the acquisition of additional mineral interests or similar investments in the energy industry as
part of the growth of Minerals Management, with an initial focus on smaller, diversifying acquisitions with near-term cash
flow yields. The Company has recently formed Mitigation Resources of North America® to create and sell stream and wetland
mitigation credits and provide services to those engaged in permittee-responsible mitigation. This new business has achieved
several early successes and is positioned for additional growth.
The Company is leveraging its core mining skills to develop a strong and diverse portfolio of service-based businesses
operating in the mining and natural resources industries. The Company is also committed to maintaining a conservative capital
structure while it grows and diversifies without unnecessary risk. Ultimately, diversified strategic growth is the key to
increasing free cash flow available to continue to re-invest in and expand the businesses. The Company also continues to
maintain the highest levels of customer service and operational excellence, with an unwavering focus on safety and
environmental stewardship.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2 to the Consolidated Financial Statements in this Form 10-K for a description of recently issued accounting
standards, including actual and expected dates of adoption and effects to the Company's Consolidated Financial Statements.
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)
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. Among the factors that could cause plans, actions
and results to differ materially from current expectations are, without limitation: (1) changes to or termination of a long-term
mining contract, or a customer default under a contract, including any decision by Great River Energy to reduce operations or
prematurely close the Coal Creek Station power plant, (2) changes in coal consumption patterns of U.S. electric power
generators or the power industry that would affect demand for the Company's mineral reserves, (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 and geotechnical 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,
liquidity events or other events that would change the level of customers' coal or aggregates requirements, (7) weather or
equipment problems that could affect deliveries to customers, (8) failure or delays by the Company's lessees in achieving
expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services
in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives
relating to hydraulic fracturing; and the ability of lessees to obtain capital or financing needed for well development
operations, (9) changes in the costs to reclaim mining areas, (10) costs to pursue and develop new mining and value-added
service opportunities, (11) delays or reductions in coal or aggregates deliveries, (12) changes in the prices of hydrocarbons,
particularly diesel fuel, natural gas and oil, (13) increased competition, including consolidation within the coal and aggregates
industries, and (14) disruption from natural or human causes, including severe weather, accidents, fires, earthquakes, terrorist
acts and epidemic or pandemic diseases, such as the coronavirus, any of which could result in suspension of operations or
harm to people or the environment.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, the Company is not
required to provide this information.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of
this Form 10-K and is hereby incorporated herein by reference to such information.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There were no disagreements with accountants on accounting and financial disclosure for the two-year period ended
December 31, 2019 that require disclosure pursuant to this Item 9.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the
participation of the Company's management, including the principal executive officer and the principal financial officer, of the
effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on
that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective.
Management's report on internal control over financial reporting: Management is responsible for establishing and
maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management,
including the principal executive officer and principal financial officer, the Company conducted an evaluation of the
44
effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this
evaluation under the framework, management concluded that the Company's internal control over financial reporting was
effective as of December 31, 2019. The Company's effectiveness of internal control over financial reporting as of December 31,
2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is
included in Item 15 of this Form 10-K and incorporated herein by reference.
Changes in internal control: There have been no changes in the Company's internal control over financial reporting, that
occurred during the fourth quarter of 2019, that have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
45
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to Directors of the Company will be set forth in the 2020 Proxy Statement under the subheadings
“Part III — Proposals To Be Voted On At The 2020 Annual Meeting — Proposal 1 — Election of Directors,” which
information is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the
2020 Proxy Statement under the subheading “Part I — Corporate Governance Information — Directors' Meetings and
Committees,” which information is incorporated herein by reference.
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors,
executive officers and holders of more than ten percent of the Company's equity securities will be set forth in the 2020 Proxy
Statement under the subheading “Part IV — Other Important Information — Section 16(a) Beneficial Ownership Reporting
Compliance,” which information is incorporated herein by reference.
The Company has adopted a code of business conduct and ethics applicable to all Company personnel, including the principal
executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar
functions. The code of business conduct and ethics, entitled the “Code of Corporate Conduct,” is posted on the Company's
website at www.nacco.com under “Corporate Governance.” If the Company makes any amendments to or grants any waivers
from the code of business conduct and ethics which are required to be be disclosed pursuant to the Securities and Exchange Act
of 1934, the Company will make such disclosure on the NACCO website.
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the 2020 Proxy Statement under the headings “Part II
— Executive Compensation Information” and “Part III — Proposals To Be Voted On At The 2020 Annual Meeting —
Proposal 1 — Election of Directors,” which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management will be set forth in the 2020 Proxy
Statement under the subheading “Part IV — Other Important Information — Beneficial Ownership of Class A Common and
Class B Common,” which information is incorporated herein by reference.
Information with respect to compensation plans (including individual compensation arrangements) under which equity
securities are authorized for issuance will be set forth in the 2020 Proxy Statement under the subheading “Part IV — Other
Important Information — Equity Compensation Plan Information," which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions will be set forth in the 2020 Proxy Statement under the
subheadings “Part I — Corporate Governance Information — Review and Approval of Related-Person Transactions,” which
information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services will be set forth in the 2020 Proxy Statement under the
heading “Part III — Proposals To Be Voted On At The 2020 Annual Meeting — Proposal 3 — Ratification of the Appointment
of Company's Independent Registered Public Accounting Firm,” which information is incorporated herein by reference.
46
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) (1) and (2) The response to Item 15(a)(1) and (2) is set forth beginning at page F-1 of this Form 10-K.
(b) Financial Statement Schedules — The response to Item 15(c) is set forth beginning at page F-34 of this Form 10-K.
(c) Exhibits required by Item 601 of Regulation S-K
Exhibit
Number
Exhibit Description
(3) Articles of Incorporation and By-laws.
3.1(i)
3.1(ii)
Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3(i) to the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number
1-9172.
Amended and Restated By-laws of the Company are incorporated herein by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K, filed by the Company on December 18, 2014, Commission File Number
1-9172.
(4) Instruments defining the rights of security holders, including indentures.
4.1
4.2
4.3
4.4
4.5
The Company by this filing agrees, upon request, to file with the Securities and Exchange Commission the
instruments defining the rights of holders of long-term debt of the Company and its subsidiaries where the total
amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis.
The Mortgage and Security Agreement, dated April 8, 1976, between The Falkirk Mining Company (as Mortgagor)
and Cooperative Power Association and United Power Association (collectively, as Mortgagee) is incorporated
herein by reference to Exhibit 4(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, Commission File Number 1-9172.
Amendment No. 1 to the Mortgage and Security Agreement, dated as of December 15, 1993, between Falkirk
Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively,
as Mortgagee) is incorporated herein by reference to Exhibit 4(iii) to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, Commission File Number 1-9172.
Amended and Restated Stockholders' Agreement, dated as of September 29, 2017, among NACCO Industries, Inc.,
the other signatories thereto and NACCO Industries, Inc., as depository, is incorporated by reference to Exhibit
10.4 to the Company's Current Report on Form 8-K, filed by the Company on October 5, 2017, Commission File
Number 1-9172.
Amendment to Amended and Restated Stockholders' Agreement, dated as of February 14, 2019, among NACCO
Industries, Inc., the other signatories thereto and NACCO Industries, Inc., as depository, is incorporated by
reference to Exhibit 4.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2018, Commission File Number 1-9172.
4.6**
Description of Securities
47
Exhibit
Number
Exhibit Description
(10) Material contracts
10.1*
NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Amended and Restated March
1, 2012) is incorporated herein by reference to Appendix B to NACCO's Definitive Proxy Statement, filed by
NACCO on March 16, 2012, Commission File Number 1-9172.
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12
10.13
10.14
10.15
10.16
10.17
NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated March 1,
2017) is incorporated herein by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the
Company on March 27, 2017, Commission File Number 1-9172.
NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated March 1,
2019) is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by
the Company on May 8, 2019, Commission File Number 1-9172.
NACCO Industries, Inc. Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 9,
2017) is incorporated herein by reference to Appendix B to NACCO's Definitive Proxy Statement, filed by the
Company on March 27, 2017, Commission File Number 1-9172.
NACCO Industries, Inc. Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 8,
2019) is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by
the Company on May 8, 2019, Commission File Number 1-9172.
Form of Award Agreement for the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus
Plan is incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K, filed by the
Company on September 17, 2012, Commission File Number 1-9172.
Form of Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive
Compensation Plan is incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed
by the Company on August 1, 2017, Commission File Number 1-9172.
Form of Non-Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive
Compensation Plan is incorporated herein by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q, filed
by the Company on August 1, 2017, Commission File Number 1-9172.
Form of Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive
Compensation Plan.**
Form of Non-Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive
Compensation Plan.**
Separation Agreement, dated as of September 29, 2017, between NACCO Industries, Inc. and Hamilton Beach
Brands Holding Company, is incorporated by reference to Exhibit 10.1 of Hamilton Beach Brands Holding
Company's Current Report on Form 8-K, filed on October 4, 2017, Commission File Number 1-9172.
Tax Allocation Agreement, dated as of September 29, 2017, between NACCO Industries, Inc. and Hamilton Beach
Brands Holding Company, is incorporated by reference to Exhibit 10.3 of Hamilton Beach Brands Holding
Company's Current Report on Form 8-K, filed on October 4, 2017, Commission File Number 1-9172.
Consulting Agreement, dated as of September 29, 2017, between NACCO Industries, Inc. and Alfred M. Rankin,
Jr., is incorporated by reference to Exhibit 10.5 of NACCO Industries, Inc.'s Current Report on Form 8-K, filed on
October 5, 2017, Commission File Number 1-9172.
Transfer Restriction Agreement, dated as of September 29, 2017, by and among the Issuer, NACCO and the
signatories thereto, is incorporated by reference to Exhibit 2 of Hamilton Beach Brands Holding Company's
General statement of acquisition of beneficial ownership on Form SC 13D, filed on October 6, 2017, Commission
File Number 1-9172.
Transition Services Agreement, dated as of September 29, 2017, between NACCO Industries, Inc. and Hamilton
Beach Brands Holding Company, is incorporated by reference to Exhibit 10.2 of Hamilton Beach Brands Holding
Company's Current Report on Form 8-K, filed on October 4, 2017, Commission File Number 1-9172.
Amendment No. 1 to the Transition Services Agreement, dated as of September 29, 2018, is incorporated herein by
reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2018, Commission File Number 1-9172.
Amendment No. 2 to the Transition Services Agreement, dated as of December 18, 2018, is incorporated herein by
reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2018, Commission File Number 1-9172.
48
Exhibit
Number
10.18*
10.19*
Exhibit Description
NACCO Industries, Inc. Short-Term Incentive Compensation Plan (Effective as of March 1, 2019) is incorporated
herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on
February 13, 2019, Commission File Number 1-9172.
The Retirement Benefit Plan for Alfred M. Rankin, Jr. (Amended and Restated Effective as of January 1, 2014) is
incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 8-K, filed by the
Company on February 14, 2014, Commission File Number 1-9172.
10.20* NACCO Industries, Inc. Unfunded Benefit Plan (Amended and Restated Effective as of January 1, 2014) is
incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 8-K, filed by the
Company on February 14, 2014, Commission File Number 1-9172.
10.21*
10.22*
10.23*
10.24*
10.25*
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of
January 1, 2008) is incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-
K, filed by the Company on December 19, 2007, Commission File Number 1-9172.
The North American Coal Corporation Long-Term Incentive Compensation Plan (Effective as of January 1, 2016)
is is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the
Company on May 11, 2016, Commission File Number 1-9172.
Amendment No. 1 to The North America Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.41 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, Commission File Number 1-9172.
The North American Coal Corporation Annual Incentive Compensation Plan (Amended and Restated Effective
March 1, 2015) is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K,
filed by the Company on May 18, 2015, Commission File Number 1-9172.
Amendment No. 2 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.40 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2010, Commission File Number 1-9172.
Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company,
dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.11 to the Company’s Quarterly
Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
First Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota
Coal Company, dated as of June 1, 1994, is incorporated herein by reference to Exhibit 10.12 to the Company’s
Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
Second Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and
Dakota Coal Company, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.13 to the
Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File
Number 1-9172.+
Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the
State of North Dakota, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.14 to the
Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File
Number 1-9172.
First Amendment to the Option and Put Agreement by and among The North American Coal Corporation, Dakota
Coal Company and the State of North Dakota, dated as of June 1, 1994, is incorporated herein by reference to
Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013,
Commission File Number 1-9172.
Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited
Partnership, dated as of April 1, 1998, is incorporated herein by reference to Exhibit 10.16 to the Company’s
Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
First Amendment to Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw
Generation Limited Partnership, dated as of August 30, 2016, is incorporated herein by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q, filed by the Company on November 1, 2016, Commission File
Number 1-9172.+
Pay Scale Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited
Partnership, dated as of September 29, 2005, is incorporated herein by reference to Exhibit 10.17 to the Company’s
Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
Consent and Agreement by and among Mississippi Lignite Mining Company, Choctaw Generation Limited
Partnership, SE Choctaw L.L.C. and Citibank, N.A., dated as of December 20, 2002, is incorporated herein by
reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March
20, 2013, Commission File Number 1-9172.
49
Exhibit
Number
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
10.48
Exhibit Description
Amendment No. 1 to Lignite Sales Agreement, Settlement Agreement and Release by and between Mississippi
Lignite Mining Company and Choctaw Generation Limited Partnership, LLLP, dated as of November 16, 2018, is
incorporated herein by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2018, Commission File Number 1-9172.
Second Restatement of Coal Sales Agreement by and between The Falkirk Mining Company and Great River
Energy, dated as of January 1, 2007, is incorporated herein by reference to Exhibit 10.18 to the Company’s
Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
Amendment No. 1 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company
and Great River Energy, dated as of January 21, 2011, is incorporated herein by reference to Exhibit 10.19 to the
Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File
Number 1-9172.
Amendment No. 2 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company
and Great River Energy, dated as of March 1, 2014, is incorporated herein by reference to Exhibit 10.52 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Commission File Number
1-9172.
Amendment No. 3 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company
and Great River Energy, dated as of January 1, 2019, is incorporated herein by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, Commission File Number
1-9172.
Restatement of Option Agreement by and among The Falkirk Mining Company, Cooperative Power Association,
United Power Association, and the State of North Dakota, dated as of January 1, 1997, is incorporated herein by
reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March
20, 2013, Commission File Number 1-9172.
Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern
Electric Power Company, dated as of January 1, 2008, is incorporated herein by reference to Exhibit 10.21 to the
Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File
Number 1-9172.+
Amendment No. 1 to Third Restatement of Lignite Mining Agreement by and between The Sabine Mining
Company and Southwestern Electric Power Company, dated as of October 18, 2013 is incorporated herein by
reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2014, Commission File Number 1-9172.
Option Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company
and Longview National Bank, dated as of January 15, 1981, is incorporated herein by reference to Exhibit 10.22 to
the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File
Number 1-9172.
Addendum to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric
Power Company and Longview National Bank, dated as of January 15, 1981 is incorporated herein by reference to
Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013,
Commission File Number 1-9172.
Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric
Power Company and Longview National Bank, dated as of December 2, 1996, is incorporated herein by reference
to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013,
Commission File Number 1-9172.
Second Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern
Electric Power Company and Regions Bank, dated as of January 1, 2008, is incorporated herein by reference to
Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013,
Commission File Number 1-9172.
Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company, Texas
Commerce Bank-Longview, Nortex Mining Company and The Sabine Mining Company, dated as of June 30,
1988, is incorporated herein by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q/A,
filed by the Company on March 20, 2013, Commission File Number 1-9172.
Lignite Sales Agreement between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company,
Northern Municipal Power Agency, Montana-Dakota Utilities Co. and Northwestern Corporation dated as of
October 10, 2012 is incorporated herein by reference to Exhibit 10.58 to the Company’s Annual Report on Form
10-K, filed by the Company on March 6, 2013, Commission File Number 1-9172.++
50
Exhibit
Number
10.49
10.50
10.51*
10.52*
10.53*
10.54*
10.55
10.56
10.57
10.58
Exhibit Description
First Amendment to Lignite Sales Agreement, dated as of January 30, 2014, between Coyote Creek Mining
Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities
Co., a division of MDU Resources Group, Inc. and NorthWestern Corporation is incorporated herein by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K, filed by the Company on January 30, 2014,
Commission File Number 1-9172.
Second Amendment to Lignite Sales Agreement, dated as of March 16, 2015, between Coyote Creek Mining
Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities
Co., a division of MDU Resources Group, Inc., and NorthWestern Corporation is incorporated herein by reference
to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on May 5, 2015,
Commission File Number 1-9172.
Amendment No. 3 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q, filed by the Company on October 30, 2013, Commission File Number 1-9172.
Amendment No. 4 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.54 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
Amendment No. 5 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.57 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2015, Commission File Number I-9172.
Amendment No. 6 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and
Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.52 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2016, Commission File Number I-9172.
Agreement, dated as of March 16, 2015, among The North American Coal Corporation, Otter Tail Power
Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co., a division of MDU Resources
Group, Inc. and Northwestern Corporation is incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q, filed by the Company on May 5, 2015, Commission File Number 1-9172.
The North American Coal Corporation Excess Retirement Plan (Amended and Restated Effective January 1, 2016)
is incorporated herein by reference to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, Commission File Number 1-9172.
The North American Coal Corporation Excess Retirement Plan (Amended and Restated Effective January 1, 2020)
is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the
Company on December 18, 2019, Commission File Number 1-9172.
Amended and Restated Credit Agreement by and among The North American Coal Corporation and the Lenders
party thereto and KeyBank National Association as Syndication Agent, PNC Bank National Association as
Administrative Agent and KeyBanc Capital Markets Inc. and PNC Capital Markets LLC as Joint Lead Arrangers
and Joint Bookrunners, dated as of August 11, 2017 is incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K, filed by the Company on August 15, 2017, Commission File Number
1-9172.
(21) Subsidiaries. A list of the subsidiaries of the Company is attached hereto as Exhibit 21.
(23) Consents of experts and counsel.
23.1
Consents of experts and counsel.
(24) Powers of Attorney.
24.1
24.2
24.3
24.4
24.5
24.6
24.7
24.8
24.9
24.10
24.11
A copy of a power of attorney for John S. Dalrymple is attached hereto as Exhibit 24.1.
A copy of a power of attorney for John P. Jumper is attached hereto as Exhibit 24.2.
A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24.3.
A copy of a power of attorney for Timothy K. Light is attached hereto as Exhibit 24.4.
A copy of a power of attorney for Michael S. Miller is attached hereto as Exhibit 24.5.
A copy of a power of attorney for Richard de J. Osborne is attached hereto as Exhibit 24.6.
A copy of a power of attorney for Alfred M. Rankin, Jr. is attached hereto as Exhibit 24.7.
A copy of a power of attorney for Matthew M. Rankin is attached hereto as Exhibit 24.8.
A copy of a power of attorney for Roger F. Rankin is attached hereto as Exhibit 24.9.
A copy of a power of attorney for Lori J. Robinson is attached hereto as Exhibit 24.10.
A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24.11.
51
(31) Rule 13a-14(a)/15d-14(a) Certifications.
31(i)(1)
31(i)(2)
(32)
(95)
Certification of J.C. Butler, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as
Exhibit 31(i)(1).
Certification of Elizabeth I. Loveman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached
hereto as Exhibit 31(i)(2).
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, signed and dated by J.C. Butler, Jr. and Elizabeth I. Loveman.
Mine Safety Disclosure Exhibit is attached hereto as Exhibit 95.
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
*
**
+
++
Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item15(b)
of this Annual Report on Form 10-K.
Filed herewith.
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in
reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential
treatment dated March 27, 2013. Portions for which confidential treatment has been granted have been marked
with three asterisks [***] and a footnote indicating "Confidential treatment requested".
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in
reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential
treatment dated April 2, 2013. Portions for which confidential treatment has been granted have been marked with
three asterisks [***] and a footnote indicating "Confidential treatment requested".
52
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NACCO Industries, Inc.
By: /s/ Elizabeth I. Loveman
Elizabeth I. Loveman
Vice President and Controller
(principal financial and accounting officer)
March 4, 2020
53
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ J.C. Butler, Jr.
J.C. Butler, Jr.
/s/ Elizabeth I. Loveman
Elizabeth I. Loveman
*John S. Dalrymple
John S. Dalrymple
* John P. Jumper
John P. Jumper
* Dennis W. LaBarre
Dennis W. LaBarre
*Timothy K. Light
Timothy K. Light
* Michael S. Miller
Michael S. Miller
* Richard de J. Osborne
Richard de J. Osborne
* Alfred M. Rankin, Jr.
Alfred M. Rankin, Jr.
* Matthew M. Rankin
Matthew M. Rankin
* Roger F. Rankin
Roger F. Rankin
*Lori J. Robinson
Lori J. Robinson
* Britton T. Taplin
Britton T. Taplin
President and Chief Executive Officer (principal
executive officer)
March 4, 2020
Vice President and Controller (principal financial
and accounting officer)
March 4, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
March 4, 2020
* Elizabeth I. Loveman, by signing her name hereto, does hereby sign this Form 10-K on behalf of each of the above named
and designated directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the
Securities and Exchange Commission.
/s/ Elizabeth I. Loveman
Elizabeth I. Loveman, Attorney-in-Fact
March 4, 2020
54
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2), AND ITEM 15(c)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2019
NACCO INDUSTRIES, INC.
CLEVELAND, OHIO
F-1
FORM 10-K
ITEM 15(a)(1) AND (2)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries, Inc. and Subsidiaries are incorporated by reference
in Item 8:
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm — For each of the two years in the
period ended December 31, 2019.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on Internal Control Over Financial
Reporting — As of December 31, 2019.
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10
The following consolidated financial statement schedules of NACCO Industries, Inc. and Subsidiaries are included in
Item 15(c):
Schedule I — Condensed Financial Information of the Parent
Schedule II — Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under
the related instructions or are inapplicable, and therefore have been omitted.
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of NACCO Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries (the Company) as
of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), equity and cash
flows for each of the two years in the period ended December 31, 2019, and the related notes and the financial statement schedules
listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018,
and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
2013 framework and our report dated March 4, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Cleveland, Ohio
March 4, 2020
F-3
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of NACCO Industries, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2019,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, NACCO Industries, Inc. and Subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2019 consolidated financial statements of the Company and our report dated March 4, 2020 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report
on internal control over financial reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 4, 2020
F-4
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2019
2018
(In thousands, except per share data)
$
140,990
$
109,862
31,128
63,883
53,783
2,614
(206)
56,191
38,820
872
(3,616)
(1,300)
1,537
(1,545)
(527)
(4,579)
43,399
3,767
$
$
$
39,632
$
5.68
5.66
$
$
6,974
7,007
135,375
105,407
29,968
64,994
49,192
3,038
(892)
51,338
43,624
1,998
(865)
(1,276)
1,297
316
(9)
1,461
42,163
7,378
34,785
5.02
5.00
6,924
6,960
Revenues
Cost of sales
Gross profit
Earnings of unconsolidated operations
Operating expenses
Selling, general and administrative expenses
Amortization of intangible assets
Gain on sale of assets
Operating profit
Other (income) expense
Interest expense
Interest income
Income from other unconsolidated affiliates
Closed mine obligations
(Gain) loss on equity securities
Other, net
Income before income tax provision
Income tax provision
Net income
Earnings per share:
Basic earnings per share
Diluted earnings per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
See notes to the Consolidated Financial Statements.
F-5
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income
Other comprehensive income
Current period pension and postretirement plan adjustment, net of $226 expense and
$14 tax benefit in 2019 and 2018, respectively
Pension settlement, net of $202 tax benefit in 2019
Reclassification of pension and postretirement adjustments into earnings, net of $90
and $85 tax benefit in 2019 and 2018, respectively
Total other comprehensive income
Comprehensive income
See notes to the Consolidated Financial Statements.
Year Ended December 31
2019
2018
(In thousands)
$
39,632
$
34,785
758
671
845
2,274
$
41,906
$
(301)
—
489
188
34,973
F-6
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets
Cash and cash equivalents
Trade accounts receivable, net of allowances of $0 and $1,523 in 2019 and 2018, respectively
Accounts receivable from affiliates
Inventories
Assets held for sale
Prepaid expenses and other
Total current assets
Property, plant and equipment, net
Intangibles, net
Investment in unconsolidated subsidiaries
Deferred costs
Operating lease right-of-use assets
Other non-current assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Accounts payable to affiliates
Revolving credit agreements
Current maturities of long-term debt
Asset retirement obligations
Accrued payroll
Deferred compensation
Other current liabilities
Total current liabilities
Long-term debt
Operating lease liabilities
Asset retirement obligations
Pension and other postretirement obligations
Deferred income taxes
Deferred compensation
Other long-term liabilities
Total liabilities
Stockholders’ equity
Common stock:
Class A, par value $1 per share, 5,397,458 shares outstanding (2018 - 5,352,590 shares outstanding)
Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,568,670 shares
outstanding (2018 - 1,568,810 shares outstanding)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and equity
See notes to the Consolidated Financial Statements.
F-7
December 31
2019
2018
(In thousands, except share data)
$
$
$
$
$
$
$
122,892
15,444
6,411
40,465
—
15,456
200,668
138,061
37,902
24,611
3,944
11,398
28,189
444,773
9,374
577
7,000
795
2,285
19,583
13,465
8,887
61,966
17,148
12,448
34,574
8,807
12,338
—
8,100
155,381
85,257
20,817
7,999
31,209
4,330
14,562
164,174
124,554
40,516
20,091
3,244
—
24,412
376,991
7,746
1,653
4,000
654
1,826
19,853
—
6,516
42,248
6,367
—
35,877
10,429
2,846
12,939
15,581
126,287
5,397
5,352
1,569
8,911
284,852
(11,337)
289,392
444,773
$
1,569
7,042
250,352
(13,611)
250,704
376,991
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization
Amortization of deferred financing fees
Deferred income taxes
Stock-based compensation
Gain on sale of assets
Other
Working capital changes:
Affiliates receivable/payable
Accounts receivable
Inventories
Other current assets
Accounts payable
Income taxes receivable/payable
Other current liabilities
Net cash provided by operating activities
Investing Activities
Expenditures for property, plant and equipment
Proceeds from the sale of assets
Other
Net cash used for investing activities
Financing Activities
Net additions (reductions) to revolving credit agreement
Additions to long-term debt
Reductions to long-term debt
Cash dividends paid
Purchase of treasury shares
Other
Net cash provided by (used for) financing activities
Cash and Cash Equivalents
Total increase (decrease) for the year
Balance at the beginning of the year
Balance at the end of the year
See notes to the Consolidated Financial Statements.
F-8
Year Ended December 31
2019
2018
(In thousands)
$
39,632
$
34,785
16,240
334
8,698
4,924
(206)
(7,405)
1,903
8,221
(9,256)
1,432
(388)
(5,447)
(5,898)
52,784
14,683
334
9,281
3,958
(892)
(7,946)
6,771
(3,008)
(1,193)
(508)
60
(2,478)
775
54,622
(24,664)
(20,930)
4,572
(170)
1,454
1,089
(20,262)
(18,387)
12,000
2,000
(742)
(5,132)
(3,010)
(3)
5,113
37,635
85,257
$
122,892
$
(46,000)
396
(1,125)
(4,578)
(1,294)
23
(52,578)
(16,343)
101,600
85,257
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
Class A
Common
Stock
Class B
Common
Stock
Capital in
Excess of
Par Value
Retained
Earnings
Accumulated Other
Comprehensive Income (Loss)
Deferred Gain
(Loss) on
Available for
Sale Securities
Pension and
Postretirement
Plan
Adjustment
Total
Stockholders'
Equity
$
$
(In thousands, except per share data)
2,727
—
(2,727)
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
— $
216,490
(1,963)
2,727
2,891
—
—
—
34,785
(4,578)
—
—
250,352
—
—
39,632
(5,132)
—
—
—
284,852
4,447 $
—
—
—
3,850
(1,255)
—
—
—
—
—
7,042 $
4,807
(2,938)
—
—
—
—
—
8,911 $
$
$
(11,068)
—
—
(2,731)
—
—
—
—
—
(301)
489
(13,611)
—
—
—
—
758
671
845
(11,337)
$
$
$
219,448
(1,963)
—
160
3,958
(1,294)
—
34,785
(4,578)
(301)
489
250,704
4,924
(3,010)
39,632
(5,132)
758
671
845
289,392
Balance, January 1, 2018
ASC 606 adoption (see Note 3)
ASU 2016-01 adoption (see Note 9)
ASU 2018-02 adoption
Stock-based compensation
Purchase of treasury shares
Conversion of Class B to Class A shares
Net income
Cash dividends on Class A and Class B common stock: $0.6600 per share
Current period other comprehensive income, net of tax
Reclassification adjustment to net income, net of tax
Balance, December 31, 2018
Stock-based compensation
Purchase of treasury shares
Net income
Cash dividends on Class A and Class B common stock: $0.7350 per share
Current period other comprehensive income, net of tax
Pension settlement, net of tax
Reclassification adjustment to net income, net of tax
Balance, December 31, 2019
$
$
$
See notes to the Consolidated Financial Statements.
5,282 $
—
—
—
108
(39)
1
—
—
—
—
5,352 $
117
(72)
—
—
—
—
—
5,397 $
1,570 $
—
—
—
—
—
(1)
—
—
—
—
1,569 $
—
—
—
—
—
—
—
1,569 $
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 1—Principles of Consolidation and Nature of Operations
The Consolidated Financial Statements include the accounts of NACCO Industries, Inc.® (the parent company or “NACCO”)
and its wholly owned subsidiaries (“NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and
transactions are eliminated in consolidation. NACCO is the public holding company for The North American Coal
Corporation® ("NACoal"). In the first quarter of 2019, the Company changed its segment reporting to three operating segments:
Coal Mining, North American Mining (“NAMining”) and Minerals Management.
The Company also has unallocated items not directly attributable to a reportable segment. Prior to January 1, 2019, NACoal
was the Company’s operating segment. NACCO and Other, which included parent company operations and Bellaire
Corporation (“Bellaire”), was the Company’s non-operating segment. Historical financial information for 2018 has been recast
to conform to the current presentation. See Note 15 to the Consolidated Financial Statements for further discussion of segment
reporting.
The Company’s operating segments are further described below:
Coal Mining Segment
The operating coal mines are: Bisti Fuels LLC (“Bisti”), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino
Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC
(“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Mississippi
Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”). Liberty Fuels Company, LLC (“Liberty”)
ceased all mining and delivery of lignite in 2017. The terms of the contract specified that Mississippi Power was responsible for
all mine closure costs and Liberty receives compensation for providing mine reclamation services. As of December 31, 2019,
the mine areas have been reclaimed and final mine reclamation activities, primarily monitoring, will continue until final bond
release.
At all operating coal mines other than MLMC, the Company 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. The customers are responsible for funding all mine operating costs, including final mine
reclamation, and directly or indirectly provide all of the capital required to build and operate the mine. This contract structure
eliminates exposure to spot coal market price fluctuations while providing steady income and cash flow with minimal capital
investment. Other than at Coyote Creek, debt financing provided by or supported by the customers is without recourse to
NACCO and NACoal. See Note 17 for further discussion of Coyote Creek's guarantees.
All operating coal mines other than MLMC meet the definition of a variable interest entity (“VIE”). In each case, NACCO is
not the primary beneficiary of the VIE as it does not exercise financial control; therefore, NACCO does not consolidate the
results of these operations within its financial statements. Instead, these contracts are accounted for as equity method
investments. The income before income taxes associated with these VIE's is reported as Earnings of unconsolidated operations
on the Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in
Unconsolidated Subsidiaries in the Consolidated Balance Sheets. The mines that meet the definition of a VIE are referred to
collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the
NACCO consolidated U.S. tax return; therefore, the income tax expense line on the Consolidated Statements of Operations
includes income taxes related to these entities. All of the Unconsolidated Subsidiaries are accounted for under the equity
method. See Note 17 for further discussion.
The MLMC contract is the only operating coal contract in which the Company is responsible for all operating costs, capital
requirements and final mine reclamation; therefore, MLMC is consolidated within NACCO’s financial statements. MLMC sells
coal to its customer at a contractually agreed-upon price which adjusts monthly, primarily based on changes in the level of
established indices which reflect general U.S. inflation rates.
Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015. Since 2015, the
Company has sold or transferred certain Centennial equipment and mineral reserves. The Company continues to evaluate
strategies for the remaining mineral reserves and a dragline, which have no remaining book value. Cash expenditures related to
mine reclamation at Centennial will continue until mine reclamation is complete, or ownership of, or responsibility for, the
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
remaining mines is transferred. Centennial is a consolidated entity within the Coal Mining segment as the Company is
responsible for carrying costs and final mine reclamation.
NAMining Segment
The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other
minerals. The segment is a primary platform for the Company’s growth and diversification outside of the coal industry.
NAMining provides contract mining services for independently owned mines and quarries, creating value for its customers by
performing the mining aspects of its customers’ operations. This allows customers to focus on their areas of expertise: materials
handling and processing, product sales and distribution. NAMining operates primarily at limestone quarries in Florida, but is
focused on expanding outside of Florida and into mining materials other than limestone. During 2019, the Company entered
into a mining agreement to serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.
NAMining utilizes both fixed price and cost plus a management fee contract structures. Certain of the entities within NAMining
segment are VIEs and are accounted for under the equity method as Unconsolidated Subsidiaries. See Note 17 for further
discussion.
Minerals Management Segment
The Minerals Management segment promotes the development of the Company’s oil, gas and coal reserves, generating income
primarily from royalty-based lease payments from third parties. The Company’s gas, oil and undeveloped coal reserves are
located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas),
Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal and coalbed methane
and natural gas) and North Dakota (coal).
The majority of the Company’s existing reserves were acquired as part of its historical coal mining operations. The Minerals
Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to
explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a
lesser extent, oil and coal. Specialized employees in the Minerals Management segment also provide surface and mineral
acquisition and lease maintenance services related to Company operations.
NOTE 2—Significant Accounting Policies
Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and judgments. These estimates and judgments affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities (if any) at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and highly liquid investments with original
maturities of three months or less.
Inventories: Inventories are stated at the lower of cost or net realizable value. The weighted average method is used for
inventory valuation.
Property, Plant and Equipment, Net: Property, plant and equipment are initially recorded at cost. Depreciation, depletion and
amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under finance
leases, over their estimated useful lives using the straight-line method or the units-of-production method. Buildings and
building improvements are depreciated over the life of the mine, which is generally 30 years. Estimated lives for machinery and
equipment range from three to 15 years. The units-of-production method is used to amortize certain assets based on estimated
recoverable tonnages. Repairs and maintenance costs are expensed when incurred, unless such costs extend the estimated useful
life of the asset, in which case such costs are capitalized and depreciated. Asset retirement costs associated with asset retirement
obligations are capitalized with the carrying amount of the related long-lived asset and depreciated over the asset's estimated
useful life.
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 or asset group 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
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
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.
Coal Supply Agreement: The coal supply agreement represents a long-term supply agreement with MLMC's customer and
was recorded based on the fair value at the date of acquisition. The coal supply agreement is amortized based on units of
production over the term of the agreement, which is estimated to be 30 years. The Company reviews identified intangible assets
for impairment when changes in circumstances or the occurrence of certain events indicate potential impairment.
Self-insurance Liabilities: The Company is generally self-insured for medical claims, certain workers’ compensation claims
and certain closed mine liabilities. 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.
Revenue Recognition: See Note 3 to the Consolidated Financial Statements for discussion of revenue recognition.
Stock Compensation: The Company maintains long-term incentive programs that allow for the grant of shares of Class A
common stock, subject to restrictions, as a means of retaining and rewarding selected employees for long-term performance and
to increase ownership in the Company. Shares awarded under the plans are fully vested and entitle the stockholder to all rights
of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction
period. In general, for shares awarded for years ended December 31, 2019 and December 31, 2018, the restriction period ends
at the earliest of (i)three years after the participant's retirement date, (ii) three, five or ten years from the award date, or (iii) the
participant's death or permanent disability. Pursuant to the plans, the Company issued 85,567 and 96,153 shares related to the
years ended December 31, 2019 and 2018, respectively. After the issuance of these shares, there were 414,433 shares of Class A
common stock available for issuance under these plans. Compensation expense related to these share awards was $4.1 million
($3.3 million net of tax) and $3.4 million ($2.7 million net of tax) for the years ended December 31, 2019 and 2018,
respectively. Compensation expense represents fair value based on the market price of the shares of Class A common stock at
the grant date.
The Company also has a stock compensation plan for non-employee directors of the Company under which a portion of the
annual retainer for each non-employee director is paid in restricted shares of Class A common stock. For the year ended
December 31, 2019, $95,000 ($150,000 for the Chairman) of the non-employee director's annual retainer of $155,000
($250,000 for the Chairman) was paid in restricted shares of Class A common stock. For the year ended December 31, 2018,
$90,000 of the non-employee director's annual retainer of $150,000 was paid in restricted shares of Class A common stock.
Shares awarded under the plan are fully vested and entitle the stockholder to all rights of common stock ownership except that
shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends
at the earliest of (i) ten years from the award date, (ii) the date of the director's death or permanent disability, (iii) five years (or
earlier with the approval of the Board of Directors) after the director's date of retirement from the Board of Directors, or (iv) the
date the director has both retired from the Board of Directors and has reached age 70. Pursuant to this plan, the Company issued
22,258 and 26,968 shares related to the years ended December 31, 2019 and 2018, respectively. In addition to the mandatory
retainer fee received in restricted stock, directors may elect to receive shares of Class A common stock in lieu of cash for up to
100% of the balance of their annual retainer, committee retainer and any committee chairman's fees. These voluntary shares are
not subject to any restrictions. Total shares issued under voluntary elections were 432 in 2019 and 560 in 2018. After the
issuance of these shares, there were 77,310 shares of Class A common stock available for issuance under this plan.
Compensation expense related to these awards was $1.1 million ($0.9 million net of tax) and $0.9 million ($0.7 million net of
tax) for the years ended December 31, 2019 and 2018, respectively. Compensation expense represents fair value based on the
market price of the shares of Class A common stock at the grant date.
Financial Instruments: Financial instruments held by the Company include cash and cash equivalents, accounts receivable,
accounts payable, revolving credit agreements and long-term debt.
Fair Value Measurements: The Company accounts for the fair value measurement of its financial assets and liabilities in
accordance with U.S. generally accepted accounting principles, which defines fair value 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.
A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of
unobservable inputs when measuring fair value.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The
classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the
measurement. See Note 9 for further discussion of fair value measurements.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2019: NACCO adopted Accounting Standard Update ("ASU") 2016-02, Leases (Topic
842), which is codified in Accounting Standards Codification 842, Leases (“ASC 842”), on January 1, 2019, using the modified
retrospective transition method (the "guidance"). See Note 10 for further information on the Company's leases.
NOTE 3—Revenue Recognition
Nature of Performance Obligations
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a
performance obligation for each promised good or service that is distinct. To identify the performance obligations, the
Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are
implied by customary business practices.
Each mine or mine area has a contract with its respective customer that represents a contract under ASC 606. For its consolidated
entities, the Company’s performance obligations vary by contract and consist of the following:
At MLMC, each MMBtu delivered during the production period is considered a separate performance obligation. Revenue is
recognized at the point in time that control of each MMBtu of lignite transfers to the customer. Fluctuations in revenue from
period to period generally result from changes in customer demand.
At NAMining entities, the management service to oversee the operation of the equipment and delivery of limestone is the
performance obligation accounted for as a series. Performance momentarily creates an asset that the customer simultaneously
receives and consumes; therefore, control is transferred to the customer over time. Consistent with the conclusion that the
customer simultaneously receives and consumes the benefits provided, an input-based measure of progress is appropriate. As
each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee
and the general and administrative fee (as applicable). Fluctuations in revenue from period to period result from changes in
customer demand and variances in reimbursable costs primarily due to increases and decreases in activity levels on individual
contracts.
The Company enters into royalty contracts which grant the right to explore, develop, produce and sell minerals controlled by
the Company. These arrangements result in the transfer of mineral rights for a period of time; however, no rights to the actual
land are granted other than access for purposes of exploration, development, production and sales. The mineral rights revert
back to the Company at the expiration of the contract.
Under these royalty contracts, granting exclusive right, title, and interest in and to minerals, if any, is the performance
obligation. The performance obligation under these contracts represents a series of distinct goods or services whereby each day
of access that is provided is distinct. The transaction price consists of a variable sales-based royalty and, in certain
arrangements, a fixed component in the form of an up-front lease bonus payment. As the amount of consideration the Company
will ultimately be entitled to is entirely susceptible to factors outside its control, the entire amount of variable consideration is
constrained at contract inception. The fixed portion of the transaction price is recognized over the primary term of the contract,
which is generally five years.
Significant Judgments
The Company’s contracts with its customers contain different types of variable consideration including, but not limited to,
management fees that adjust based on coal volumes or MMBtu delivered or limestone tons, however, the terms of these
variable payments relate specifically to our efforts to satisfy one or more, but not all of, the performance obligations (or to a
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
specific outcome from satisfying the performance obligations), in the contract. Therefore, the Company allocates each variable
payment (and subsequent changes to that payment) entirely to the specific performance obligation to which it relates.
Management fees, as well as general and administrative fees, are also adjusted based on changes in specified indices (e.g., CPI)
to compensate for general inflation changes. Index adjustments, if applicable, are effective prospectively. Certain contracts
include reimbursement of actual costs incurred.
Disaggregation of Revenue
In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers into major goods and
service lines and timing of transfer of goods and services. The Company determined that disaggregating revenue into these
categories achieves the disclosure objective of depicting how the nature, amount, timing, and uncertainty of revenue and cash
flows are affected by economic factors. The Company’s business consists of the Coal Mining, NAMining and Minerals
Management segments as well as Unallocated Items. See Note 15 to the Consolidated Financial Statements for further
discussion of segment reporting.
The following table disaggregates revenue by major sources for the years ended December 31:
Major Goods/Service Lines
Coal Mining
NAMining
Minerals Management
Unallocated Items
Eliminations
Total revenues
Timing of Revenue Recognition
Goods transferred at a point in time
Services transferred over time
Total revenues
Contract Balances
2019
2018
$
$
$
$
68,701
42,823
30,119
790
(1,443)
140,990
66,102
74,888
140,990
$
$
$
$
81,549
36,950
17,352
665
(1,141)
135,375
78,849
56,526
135,375
The opening and closing balances of the Company’s current and long-term contract liabilities and receivables are as follows:
Balance, January 1, 2019
Balance, December 31, 2019
Increase (decrease)
Contract balances
Trade accounts
receivable, net
Contract liability
(current)
Contract liability
(long-term)
$
$
20,817
15,444
(5,373)
$
$
754
944
190
$
$
2,008
2,153
145
As described above, the Company enters into royalty contracts that grant exclusive right, title, and interest in and to minerals.
The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of
an up-front lease bonus payment. The timing of the payment of the fixed portion of the transaction price is upfront, however,
the performance obligation is satisfied over the primary term of the contract, which is generally five years. Therefore, at the
time any such up-front payment is received, a contract liability is recorded which represents deferred revenue. The difference
between the opening and closing balance of this contract liability, which is shown above, primarily results from the difference
between new lease bonus payments received and amortization of up-front lease bonus payments received in previous periods.
The amount of revenue recognized in the years ended December 31, 2019 and December 31, 2018 that was included in the
opening contract liability was $0.9 million and $1.2 million, respectively. This revenue consists of up-front lease bonus
payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are
generally five years. The Company expects to recognize $0.9 million in both 2020 and 2021, $0.7 million in 2022, $0.3 million
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
in 2023, and $0.1 million in 2024 related to the contract liability remaining at December 31, 2019. The difference between the
opening and closing balances of the Company’s accounts receivable and contract liabilities results from the timing difference
between the Company’s performance and the customer’s payment. Contracts with payments in arrears are recognized as
receivables.
The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer.
NOTE 4—Inventories
Inventories are summarized as follows:
Coal
Mining supplies
Total inventories
NOTE 5—Property, Plant and Equipment, Net
Property, plant and equipment, net includes the following:
Coal lands and real estate
Plant and equipment
Property, plant and equipment, at cost
Less allowances for depreciation, depletion and amortization
December 31
2019
2018
15,700
24,765
40,465
$
$
11,030
20,179
31,209
December 31
2019
2018
54,647
$
190,868
245,515
107,454
138,061
$
56,716
163,564
220,280
95,726
124,554
$
$
$
$
Total depreciation, depletion and amortization expense on property, plant and equipment was $13.6 million and $11.6 million
during 2019 and 2018, respectively.
NOTE 6—Intangible Assets
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
Balance at December 31, 2019
Coal supply agreement
Balance at December 31, 2018
Coal supply agreement
Gross Carrying
Amount
Accumulated
Amortization
Net
Balance
$
$
84,200
$
(46,298) $
37,902
84,200
$
(43,684) $
40,516
Amortization expense for intangible assets was $2.6 million and $3.0 million in 2019 and 2018, respectively.
Expected annual amortization expense of NACCO's coal supply agreement for the next five years is as follows: $3.0 million in
2020 and $3.1 million in 2021, 2022, 2023 and 2024, respectively. The coal supply agreement is amortized based on units of
production over the term of the agreement, which is estimated to be 30 years.
NOTE 7—Asset Retirement Obligations
The Company's asset retirement obligations are principally for costs to close its surface mines and reclaim the land it has
disturbed as a result of its normal mining activities as well as for costs to dismantle certain mining equipment at the end of the
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
life of the mine. The Company determined the amounts of these obligations based on cost estimates, adjusted for inflation,
projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. The accretion of the
liability is being recognized over the estimated life of each individual asset retirement obligation and is recorded in the line
“Cost of sales” in the accompanying Consolidated Statements of Operations. The associated asset is recorded in “Property,
Plant and Equipment, net” in the accompanying Consolidated Balance Sheets. The depreciation of the asset is recorded in the
line “Cost of sales” in the accompanying Consolidated Statements of Operations.
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 cost estimates, adjusted for inflation, and then discounted the
amounts using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the
asset retirement obligation and is recorded in the line “Closed mine obligations” in the accompanying Consolidated Statements
of Operations. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized.
A reconciliation of the Company's beginning and ending aggregate carrying amount of the asset retirement obligations are as
follows:
Balance at January 1, 2018
Liabilities incurred during the period
Liabilities settled during the period
Accretion expense
Revision of estimated cash flows
Balance at December 31, 2018
Liabilities incurred during the period
Liabilities settled during the period
Accretion expense
Revision of estimated cash flows at MLMC
Revision of estimated cash flows at Centennial
Balance at December 31, 2019
Coal Mining
NAMining
Unallocated
Items
NACCO
Consolidated
$
$
$
22,589
—
(920)
1,504
(2,777)
20,396
—
(8,265)
1,260
3,145
2,479
19,015
$
$
$
1,085
189
—
31
(820)
485
91
—
28
—
—
604
$
$
$
16,423
—
(747)
1,044
102
16,822
—
(752)
1,323
—
(153)
17,240
$
$
$
40,097
189
(1,667)
2,579
(3,495)
37,703
91
(9,017)
2,611
3,145
2,326
36,859
During 2019, the Company transferred the mine permits for certain Centennial mines to an unrelated third party. As a result of
these transfers, the Company was relieved of the associated mine reclamation obligations and recorded a $5.4 million reduction
to Centennial's asset retirement obligation, included in "Liabilities settled during the current period" in the table above. As part
of these transactions, the Company transferred a $3.4 million escrow account and paid $2.4 million of cash, resulting in a net
loss on the transactions of $0.4 million recognized within cost of sales in the Consolidated Statement of Operations and
reflected on the line “Revision of estimated cash flows at Centennial” in the table above. The reduction to the asset retirement
obligation related to these transfers was offset by a $2.0 million increase to the asset retirement obligation related to updated
costs estimates for the remaining Centennial asset retirement obligations recognized within cost of sales in the Consolidated
Statement of Operations and reflected on the line “Revision of estimated cash flows at Centennial” in the table above.
Due to updated cost estimates and changes in timing of the asset retirement obligation for MLMC, the Company recognized
a $3.1 million increase to the asset retirement obligation in 2019 within cost of sales in the Consolidated Statement of
Operations and reflected on the line “Revision of estimated cash flows at MLMC” in the table above.
Prior to 2018, Bellaire established a $5.0 million Mine Water Treatment Trust to provide a financial assurance mechanism in
order to assure the long-term treatment of post-mining discharges. The fair value of the Mine Water Treatment assets, which are
recognized as a component of "Other Non-Current Assets" on the Consolidated Balance Sheets, are $10.1 million at
December 31, 2019 and are legally restricted for purposes of settling the Bellaire asset retirement obligation. See Note 9 for
further discussion of the Mine Water Treatment Trust.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 8—Current and Long-Term Financing
Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not guaranteed any borrowings of its
subsidiaries.
The following table summarizes the Company's available and outstanding borrowings:
Total outstanding borrowings of NACoal:
Revolving credit agreement
Other debt
Total debt outstanding
Current portion of borrowings outstanding
Long-term portion of borrowings outstanding
Total available borrowings, net of limitations, under revolving credit agreement
Unused revolving credit agreement
December 31
2019
2018
$
$
$
$
$
$
16,000
8,943
24,943
7,795
17,148
24,943
148,644
132,644
$
$
$
$
$
$
4,000
7,021
11,021
4,654
6,367
11,021
148,481
144,481
Weighted average stated interest rate on total borrowings
5.1%
4.8%
Annual maturities of total debt, excluding leases, are as follows:
2020
2021
2022
2023
2024
Thereafter
7,237
250
9,263
277
292
6,981
24,300
$
Interest paid on total debt was $0.9 million and $2.0 million during 2019 and 2018, respectively.
NACoal has an unsecured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in August 2022.
Borrowings outstanding under the NACoal Facility were $16.0 million at December 31, 2019. At December 31, 2019, the
excess availability under the NACoal Facility was $132.6 million, which reflects a reduction for outstanding letters of credit of
$1.4 million.
The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of
debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the
level of debt to EBITDA ratio achieved. The applicable margins, effective December 31, 2019, for base rate and LIBOR loans
were 0.75% and 1.75%, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels
of debt to EBITDA ratios. The commitment fee was 0.30% on the unused commitment at December 31, 2019. The weighted
average interest rate applicable to the NACoal Facility at December 31, 2019 was 5.50% including the floating rate margin.
The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt
to EBITDA ratio of 3.00 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the
ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to
EBITDA ratio of 2.00 to 1.00, or if greater than 2.00 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction
with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million. At
December 31, 2019, NACoal was in compliance with all financial covenants in the NACoal Facility.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NACoal has a demand note payable to Coteau, one of the unconsolidated subsidiaries, 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, 2019, the balance of the note was $2.0 million and the interest rate was 1.68%.
NACoal has a ten year note payable that is secured by two specified units of equipment and bears interest at a fixed 5.29% rate.
This note includes a principal payment of $4.4 million at the end of the term on December 15, 2026. At December 31, 2019 and
2018, the outstanding balances of the note were $6.3 million and $6.6 million, respectively.
NOTE 9—Fair Value Disclosure
Recurring Fair Value Measurements: The following table presents the Company's assets and liabilities accounted for at fair
value on a recurring basis:
Description
December 31, 2019
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Equity securities
$
$
10,120
10,120
$
$
10,120
10,120
$
$
— $
— $
—
—
Description
December 31, 2018
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Equity securities
$
$
8,716
8,716
$
$
8,716
8,716
$
$
— $
— $
—
—
Bellaire's Mine Water Treatment Trust invests in available for sale securities that are reported at fair value based upon quoted
market prices in active markets for identical assets; therefore, they are classified as Level 1 within the fair value hierarchy. On
January 1, 2018, the Mine Water Treatment Trust's unrealized gain of $2.7 million was reclassified within the Consolidated
Balance Sheet upon adoption of ASU No. 2016-01. The Mine Water Treatment Trust realized a (gain)/loss of $(1.5) million and
$0.3 million in the years ended December 31, 2019 and 2018, respectively, in the "Other (income) expense " section of the
Consolidated Statements of Operations. See Note 7 for further discussion of Bellaire's Mine Water Treatment Trust.
There were no transfers into or out of Levels 1, 2 or 3 during the year ended December 31, 2019.
Other Fair Value Measurement Disclosures: The carrying amounts of cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements
and long-term debt, excluding finance leases, were determined using current rates offered for similar obligations taking into account
subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. The fair value and the book value of revolving credit
agreements and long-term debt, excluding finance leases, was $24.3 million and $24.3 million, respectively, at December 31, 2019
and $10.4 million and $10.6 million, respectively, at December 31, 2018.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts
receivable. Under its mining contracts, the Company recognizes revenue and a related receivable as coal or limestone is
delivered. These mining contracts provide for monthly settlements. The Company's significant credit concentration is
uncollateralized; however, historically minimal credit losses have been incurred. To further reduce credit risk associated with
accounts receivable, the Company performs periodic credit evaluations of its customers, but does not generally require advance
payments or collateral.
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 10—Leases
NACCO adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019 using the modified retrospective transition method.
The most significant effect to the Consolidated Balance Sheet relates to the recognition of new right-of-use assets (“ROU
assets”) and lease liabilities for operating leases of real estate, mining and other equipment that expire at various dates through
2031. The majority of the Company's leases are operating leases. See the table below for further information on the
Consolidated Balance Sheet. Many leases include renewal and/or fair value or bargain purchase options, which are not
recognized on the Consolidated Balance Sheet. The Company's lease agreements do not contain lease payments that depend on
an index or a rate, as such, minimum lease payments do not include variable lease payments. There was no cumulative effect
adjustment to the opening balance of retained earnings. The adoption of this guidance did not have a material effect on the
Company’s results of operations, cash flows, liquidity or debt-covenant compliance. NACCO did not apply the standard to the
comparative periods presented in the year of adoption.
The Company elected many of the available practical expedients permitted under the guidance, which among other items, allow
the Company to carry forward its historical lease classification, not reassess leases for the definition of a lease under the new
standard and not separate lease components from nonlease components for all classes of underlying assets. The Company also
elected the practical expedient to carry forward the historical accounting treatment for existing land easement agreements.
Upon the adoption of ASC 842, NACCO did not record a ROU asset and related lease liability for leases with an initial term of
12 months or less.
Leased assets and liabilities include the following:
Description
Assets
Operating
Finance
Liabilities
Current
Operating
Finance
Noncurrent
Operating
Finance
Location
Operating lease right-of-use assets
Property, plant and equipment, net (a)
Other current liabilities
Current maturities of long-term debt
Operating lease liabilities
Long-term debt
DECEMBER 31
2019
$
$
$
11,398
544
1,318
558
12,448
85
(a) Finance leased assets are recorded net of accumulated amortization of $1.9 million as of December 31, 2019.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The components of lease expense were as follows for the year ended December 31, 2019:
Description
Location
Lease expense
Operating lease cost
Finance lease cost:
Selling, general and administrative expenses
Amortization of leased assets
Interest on lease liabilities
Cost of sales
Interest expense
Variable lease expense
Short-term lease expense
Total lease expense
Selling, general and administrative expenses
Selling, general and administrative expenses
$
$
2,251
570
18
555
298
3,692
Rental expense for all operating leases was $3.7 million in 2018. Depreciation of plant and equipment under capital leases was
included in depreciation expense in the year ended December 31, 2018.
Future minimum finance and operating lease payments were as follows at December 31, 2019:
2020
2021
2022
2023
2024
Subsequent to 2024
Total minimum lease payments
Amounts representing interest
Present value of net minimum lease payments
Finance
Leases
Operating
Leases
567
37
37
16
—
—
657
14
643
$
$
2,193
2,149
2,175
1,685
1,661
9,330
19,193
5,427
13,766
$
$
Total
2,760
2,186
2,212
1,701
1,661
9,330
19,850
$
$
As most of the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate
based on the information available at the lease commencement date in determining the present value of lease payments. The
Company considers its credit rating and the current economic environment in determining this collateralized rate. The
assumptions used in accounting for ASC 842 were as follows for the year ended December 31, 2019:
Lease term and discount rate
Weighted average remaining lease term (years)
Operating
Finance
Weighted average discount rate
Operating
Finance
9.63
0.75
6.99%
5.95%
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table details cash paid for amounts included in the measurement of lease liabilities for the year ended
December 31, 2019:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
NOTE 11—Contingencies
$
2,299
18
534
Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries
relating to the conduct of their businesses. These proceedings and claims are incidental to the ordinary course of business of the
Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any
costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable
and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the
range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue
liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or
when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is
probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some
circumstances, an estimate of the possible loss.
These matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur,
there exists the possibility of an adverse impact on the Company’s financial position, results of operations and cash flows of the
period in which the ruling occurs, or in future periods.
NOTE 12—Stockholders' Equity and Earnings Per Share
NACCO Industries, Inc. Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.”
Because of transfer restrictions on Class B common stock, no trading market has developed, or is expected to develop, for the
Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one
basis at any time at the request of the holder. The Company's Class A common stock and Class B common stock have the same
cash dividend rights per share. As the liquidation and dividend rights are identical, any distribution of earnings would be
allocated to Class A and Class B stockholders on a proportionate basis, and accordingly the net income per share for each class
of common stock is identical. The Class A common stock has one vote per share and the Class B common stock has ten votes
per share. The total number of authorized shares of Class A common stock and Class B common stock at December 31, 2019
was 25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A common stock totaling 2,817,714 and
2,862,442 at December 31, 2019 and 2018, respectively, have been deducted from shares outstanding.
Stock Repurchase Programs: On November 6, 2019, the Company's Board of Directors approved a stock purchase program
("2019 Stock Repurchase Program") providing for the purchase of up to $25 million of the Company’s outstanding Class A
Common Stock through December 31, 2021. NACCO’s previous repurchase program ("2018 Stock Repurchase Program")
would have expired on December 31, 2019 but was terminated and replaced by the 2019 Stock Repurchase Program. During
2019, the Company repurchased 28,094 and 44,476 shares of Class A Common Stock under the 2019 Stock Repurchase
Program and 2018 Stock Repurchase Program, respectively, for an aggregate purchase price of $3.0 million. During 2018, The
Company repurchased 39,047 shares of Class A Common Stock under the 2018 Stock Repurchase Program for an aggregate
purchase price of $1.3 million.
The timing and amount of any repurchases under the 2019 Stock Repurchase Program are determined at the discretion of the
Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives,
market conditions for the Company's Class A Common Stock and other legal and contractual restrictions. The 2019 Stock
Repurchase Program does not require the Company to acquire any specific number of shares and may be modified, suspended,
extended or terminated by the Company without prior notice and may be executed through open market purchases, privately
negotiated transactions or otherwise. All or part of the repurchases under the 2019 Stock Repurchase Program may be
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the
Company might otherwise be restricted from doing so under applicable securities laws.
Stock Compensation: See Note 2 for a discussion of the Company's restricted stock awards.
Earnings per Share: The weighted average number of shares of Class A common stock and Class B common stock
outstanding used to calculate basic and diluted earnings per share were as follows:
Basic weighted average shares outstanding
Dilutive effect of restricted stock awards
Diluted weighted average shares outstanding
Basic earnings per share
Diluted earnings per share
NOTE 13—Income Taxes
2019
2018
6,974
33
7,007
$
$
5.68
5.66
$
$
6,924
36
6,960
5.02
5.00
The components of income (loss) before income tax provision (benefit) and the income tax provision (benefit) for the years
ended December 31 are as follows:
Income (loss) before income tax provision (benefit)
Domestic
Foreign
Income tax provision (benefit)
Current income tax provision (benefit):
Federal
State
Foreign
Total current
Deferred income tax provision:
Federal
State
Total deferred
2019
2018
40,742
2,657
43,399
$
$
45,170
(3,007)
42,163
(6,473) $
939
603
(4,931)
8,125
573
8,698
3,767
$
(2,296)
393
—
(1,903)
8,585
696
9,281
7,378
$
$
$
$
The Company made income tax payments of $1.0 million and $0.5 million during 2019 and 2018, respectively. During the
same periods, income tax refunds totaled $2.6 million and $0.1 million, respectively.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
A reconciliation of the federal statutory and effective income tax rate for the years ended December 31 is as follows:
Income before income tax provision
Statutory taxes at 21.0%
State and local income taxes
Non-deductible expenses
Percentage depletion
R&D and other federal credits
Settlements
Other, net
Income tax provision
Effective income tax rate
$
$
$
2019
43,399
9,114
1,129
736
(4,451)
(255)
(2,377)
(129)
3,767
8.7%
$
$
$
2018
42,163
8,854
1,241
663
(4,199)
(37)
323
533
7,378
17.5%
Income tax expense for the year ended December 31, 2019 included a net discrete tax benefit of $2.5 million primarily
resulting from effective settlement of certain items from on-going examinations and changes in prior year estimates. Income
tax expense for the year ended December 31, 2018 included $1.2 million of discrete tax expense primarily related to an
additional valuation allowance provided against deferred tax assets in India as the Company had previously determined that
such deferred tax assets do not meet the more likely than not standard for realization.
A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from
differences in the book and tax bases of assets and liabilities follows:
December 31
2019
2018
$
30,875
$
16,305
1,704
10,020
4,853
9,005
72,762
12,296
60,466
30,875
28,061
9,949
3,919
72,804
(12,338) $
$
—
19,058
2,041
9,860
4,892
9,347
45,198
14,219
30,979
—
27,299
5,146
1,380
33,825
(2,846)
Deferred tax assets
Lease liabilities
Tax carryforwards
Inventories
Accrued liabilities
Employee benefits
Other
Total deferred tax assets
Less: Valuation allowance
Deferred tax liabilities
Lease right-of-use assets
Depreciation and depletion
Partnership investment - development costs
Accrued pension benefits
Total deferred tax liabilities
Net deferred liability
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances
where the Company has determined that realization is uncertain:
State net operating loss
Federal research credit
Federal foreign tax credit
Alternative minimum tax credit
Total
Non-U.S. net operating loss
State net operating loss
Federal research credit
Alternative minimum tax credit
Total
December 31, 2019
Net deferred tax
asset
Valuation
allowance
16,531
$
13,668
1,455
463
1,596
—
463
—
20,045
$
14,131
December 31, 2018
Net deferred tax
asset
Valuation
allowance
2,340
$
16,624
1,198
2,310
2,340
13,182
—
—
22,472
$
15,522
$
$
$
$
Carryforwards
expire during:
2020-2039
2034-2038
2029
(1)
Carryforwards
expire during:
2024-2026
2019-2038
2034-2038
(1)
(1) This credit is refundable in 2021, if not fully utilized prior to 2021.
The Company has a valuation allowance for certain state and foreign deferred tax assets. Based upon the review of historical
earnings and the relevant expiration of carryforwards, including utilization limitations in the various state taxing jurisdictions,
the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the
next twelve months that would have a significant effect on the Company's financial position or results of operations.
The tax returns of the Company and certain of its subsidiaries are under routine examination by various taxing authorities. The
Company has not been informed of any material assessment for which an accrual has not been previously provided and the
Company would vigorously contest any material assessment. Management believes any potential adjustment would not
materially affect the Company's financial condition or results of operations.
In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five
years for the taxing authorities to review the applicable tax filings. The examination of the 2013-2016 U.S. federal tax returns is
ongoing. The Company does not have any material taxing jurisdictions in which the statute of limitations has been extended
beyond the applicable time frame allowed by law.
The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of
differences between tax return positions and the benefits recognized in the financial statements for the years ended
December 31, 2019 and 2018. Approximately $2.3 million and $1.1 million of these gross amounts as of December 31, 2019
and 2018, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount
differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes
which would occur upon the recognition of the state tax benefits included herein.
Balance at January 1
Additions based on tax positions related to prior years
Additions based on tax positions related to the current year
Balance at December 31
2019
2018
1,280
$
1,172
408
997
283
—
2,860
$
1,280
$
$
The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The
Company recognized net expense of less than $0.1 million in interest and penalties related to uncertain tax positions during
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
2019 and 2018, respectively. The total amount of interest and penalties accrued was $0.1 million and $0.1 million as of
December 31, 2019 and 2018, respectively.
The Company expects the amount of unrecognized tax benefits will change within the next 12 months; however, the change in
unrecognized tax benefits, which is reasonably possible within the next 12 months, is not expected to have a significant effect
on the Company's financial position, results of operations or cash flows.
NOTE 14—Retirement Benefit Plans
Defined Benefit Plans: The Company maintains defined benefit pension plans that provide benefits based on years of service
and average compensation during certain periods. Prior to 2018, the Company amended the Combined Defined Benefit Plan for
NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees. The Company
also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all pension benefits. Certain executive officers
also maintain accounts under various deferred compensation plans that were frozen prior to 2018. All eligible employees of the
Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution
retirement plans.
During the year ended December 31, 2019, the Company offered lump-sum settlements to certain Combined Plan participants.
These lump sum payments resulted in a pension settlement charge of $0.9 million.
The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:
Weighted average discount rates for pension benefit obligation
Weighted average discount rates for net periodic benefit cost
2019
2018
2.98% - 3.20% 4.10% - 4.20%
4.10% - 4.20% 3.40% - 3.55%
Expected long-term rate of return on assets for net periodic benefit cost
7.50%
7.50%
Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended
December 31:
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost
Settlements
Net periodic pension expense (income)
2019
2018
$
$
1,710
(2,778)
422
58
873
285
$
$
1,581
(2,852)
484
58
—
(729)
Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive (income)
loss for the years ended December 31:
Current year actuarial loss (gain)
Amortization of actuarial loss
Amortization of prior service cost
Settlements
Total recognized in other comprehensive loss (income)
2019
2018
$
$
(1,030) $
(422)
(58)
(873)
(2,383) $
1,397
(484)
(58)
—
855
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of
the defined benefit plans at December 31:
2019
2018
Change in benefit obligation
Projected benefit obligation at beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
Settlements
Projected benefit obligation at end of year
Accumulated benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return (loss) on plan assets
Employer contributions
Benefits paid
Settlements
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the balance sheets consist of:
Non-current assets
Current liabilities
Non-current liabilities
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss
Prior service cost
Deferred taxes
$
$
$
$
$
$
$
$
$
$
42,026
$
1,710
3,121
(2,391)
(2,612)
41,854
41,854
34,954
6,930
483
(2,391)
(2,612)
37,364
$
$
$
$
(4,490) $
$
3,079
(606)
(6,963)
(4,490) $
13,951
$
819
(3,305)
11,465
$
46,065
1,581
(3,286)
(2,334)
—
42,026
42,026
38,527
(1,832)
593
(2,334)
—
34,954
(7,072)
2,047
(588)
(8,531)
(7,072)
16,277
878
(3,320)
13,835
The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net
gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor."
Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to
benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension
plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as
settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in
AOCI.
The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations.
The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of
corporate funds. All other pension benefit payments are made from assets of the pension plans.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Future pension benefit payments expected to be paid from assets of the pension plans are:
2020
2021
2022
2023
2024
2025 - 2028
$
$
2,678
2,576
2,582
2,621
2,642
12,827
25,926
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 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.
The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology
with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated
between asset classes as balances exceed or fall below the appropriate allocation bands.
The following is the actual allocation percentage and target allocation percentage for the pension plan assets at December 31:
U.S. equity securities
Non-U.S. equity securities
Fixed income securities
Money market
2019
Actual
Allocation
2018
Actual
Allocation
Target Allocation
Range
45.1%
20.0%
34.4%
0.5%
42.4% 36.0% - 54.0%
19.4% 16.0% - 24.0%
37.7% 30.0% - 40.0%
0.5% 0.0% - 10.0%
The defined benefit pension plans do not have any direct ownership of NACCO common stock.
The fair value of each major category of the Company's pension plan assets are valued using quoted market prices in active
markets for identical assets, or Level 1 in the fair value hierarchy. Following are the values as of December 31:
U.S. equity securities
Non-U.S. equity securities
Fixed income securities
Money market
Total
Level 1
2019
2018
$
16,862
$
7,482
12,854
166
14,834
6,790
13,169
161
$
37,364
$
34,954
Postretirement Health Care: The Company also maintains health care plans which provide benefits to grandfathered eligible
retired employees. All health care plans of the Company have a cap on the Company's share of the costs. The health care plans
were amended effective January 1, 2019 to eliminate the open network structure. The move to network provided benefits will
result in cost savings for the Company. These plans have no assets. Under the Company's current policy, plan benefits are
funded at the time they are due to participants.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended
December 31:
Weighted average discount rates for benefit obligation
Weighted average discount rates for net periodic benefit cost
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2019
2018
2.65%
3.80%
6.50%
5.0%
2025
3.80%
3.10%
6.75%
5.0%
2025
Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended
December 31:
Service cost
Interest cost
Amortization of actuarial loss
Amortization of prior service credit
Net periodic benefit expense
2019
2018
24
$
77
8
(80)
29
$
50
98
96
(64)
180
$
$
Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) for the years ended December 31:
Current year actuarial loss (gain)
Amortization of actuarial loss
Current year prior service credit
Amortization of prior service credit
Total recognized in other comprehensive income (loss)
2019
2018
$
46
(8)
—
80
118
$
(756)
(96)
(325)
64
(1,113)
$
$
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health
care at December 31:
2019
2018
Change in benefit obligation
Benefit obligation at beginning of year
$
2,113
$
Service cost
Interest cost
Plan amendments
Actuarial loss (gain)
Benefits paid
Benefit obligation at end of year
Funded status at end of year
Amounts recognized in the balance sheets consist of:
Current liabilities
Noncurrent liabilities
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss
Prior service credit
Deferred taxes
Future postretirement health care benefit payments expected to be paid are:
2020
2021
2022
2023
2024
2025 - 2028
$
$
$
$
$
$
24
77
—
46
(211)
2,049
$
(2,049) $
(204) $
(1,845)
(2,049) $
$
227
(259)
(96)
(128) $
$
3,221
50
98
(326)
(756)
(174)
2,113
(2,113)
(215)
(1,898)
(2,113)
189
(339)
(74)
(224)
208
228
219
216
199
813
1,883
Defined Contribution Plans: NACCO and its subsidiaries maintain a defined contribution (401(k)) plan for substantially all
employees and provide employer matching contributions based on plan provisions. The plan also provides for a minimum
employer contribution. Total costs, including Company contributions, for these plans were $2.7 million and $2.6 million in
2019 and 2018, respectively.
NOTE 15—Business Segments
In the first quarter of 2019, the Company changed its reportable segments to reflect changes in the business, including growth
at NAMining and Minerals Management. As of January 1, 2019, the Company’s operating segments are: (i) Coal Mining, (ii)
NAMining and (iii) Minerals Management. While the Company continues to pursue opportunities to add new coal mining
operations to the Coal Mining segment, the NAMining segment will serve as the platform for pursuing non-coal mining
projects and the Minerals Management segment will work to capitalize on the Company’s oil, gas and coal reserves.
The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any
components of these segments constitute a business for which discrete financial information is available and where segment
management regularly reviews the operating results of that component. The Company’s Chief Operating Decision Maker
utilizes operating profit to evaluate segment performance and allocate resources. Operating profit for each segment includes an
allocation of shared costs based on a reasonable measure of utilization.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The Company also has costs not directly attributable to a reportable segment which are not included as part of the measurement
of segment operating profit, primarily administrative costs related to public company reporting requirements, the financial
results of the Company’s mitigation banking business, Mitigation Resources of North America® (“MRNA”), and Bellaire.
MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those
engaged in permittee-responsible stream and wetland mitigation. Bellaire manages the Company’s long-term liabilities related
to former Eastern U.S. underground mining activities. Transactions between segments are accounted for as third-party
arrangements for purposes of presenting segment results of operations and are eliminated in consolidation.
All financial statement line items below operating profit (other income including interest expense and interest income, the
provision for income taxes and net income) are presented and discussed within this Form 10-K on a consolidated basis.
Included within other income on the line Income from other unconsolidated affiliates within the Consolidated Statements of
Operations is the financial results of NoDak Energy Services, LLC ("NoDak"). NoDak operates and maintains a coal drying
system at a customer’s power plant. The NoDak contract expired in the first quarter of 2020.
See Note 1 for additional discussion of the Company's reportable segments. All current operations reside in the U.S. The
accounting policies of the reportable segments are described in Note 2.
In 2019, two customers and an oil and gas lessee individually accounted for more than 10% of consolidated revenue. In
2018, two customers individually accounted for more than 10% of consolidated revenue. The following represents the revenue
attributable to each of these entities as a percentage of consolidated revenue for those years:
Customer
Choctaw Generation Limited Partnership, LLLP
CEMEX
Ascent Resources
Segment
Coal Mining
NAMining
Minerals Management
Percentage of Consolidated
Revenue
2019
2018
48%
21%
12%
60%
20%
n/a
In addition, for the year ended December 31, 2019, the Coal Mining segment derived approximately 60% of the Earnings of
Unconsolidated Operations from two customers, Basin Electric Power Cooperative and Great River Energy.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following tables present revenue, operating profit, depreciation expense and capital expenditures for the years ended
December 31:
Revenues
Coal Mining
NAMining
Minerals Management
Unallocated Items
Eliminations
Total
Operating profit (loss)
Coal Mining
NAMining
Minerals Management
Unallocated Items
Eliminations
Total
Expenditures for property, plant and equipment
Coal Mining
NAMining
Minerals Management
Unallocated Items
Total
Depreciation, depletion and amortization
Coal Mining
NAMining
Minerals Management
Unallocated Items
Total
2019
2018
$
68,701
$
42,823
30,119
790
(1,443)
140,990
$
23,268 $
(696)
25,721
(9,729)
256
38,820 $
$
$
$
81,549
36,950
17,352
665
(1,141)
135,375
38,270
1,918
14,331
(10,473)
(422)
43,624
2019
2018
$
15,092
$
8,824
517
231
8,816
9,824
1,406
884
$
$
24,664
$
20,930
12,409
$
2,223
1,362
246
11,874
1,509
951
349
$
16,240
$
14,683
Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 16—Parent Company Condensed Balance Sheets
The condensed balance sheets of NACCO, the parent company, at December 31 are as follows:
2019
2018
ASSETS
Cash and cash equivalents
Accounts receivable from affiliates
Current intercompany accounts receivable, net
Other current assets
Investment in subsidiaries
Property, plant and equipment, net
Other non-current assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of deferred compensation
Note payable to Bellaire
Deferred compensation
Other non-current liabilities
Stockholders’ equity
$
$
$
$
$
$
120,016
515
1,255
10,448
189,338
167
4,570
326,309
5,257
13,465
16,950
—
1,245
289,392
Total Liabilities and Stockholders’ Equity
$
326,309
$
84,819
2,418
868
4,508
185,653
241
7,851
286,358
5,148
—
17,300
12,939
267
250,704
286,358
The credit agreement at NACoal allows for the transfer of assets to NACCO under certain circumstances. The amount of
NACCO's investment that was restricted at December 31, 2019 totaled approximately $1.7 million. The amount of unrestricted
cash available to NACCO included in “Investment in subsidiaries” was $0.6 million at December 31, 2019. Dividends and
management fees from its subsidiaries are the primary sources of cash for NACCO.
NOTE 17—Unconsolidated Subsidiaries
Each of the Company's wholly owned Unconsolidated Subsidiaries meet the definition of a VIE. The Unconsolidated
Subsidiaries are capitalized primarily with debt financing provided by or supported by their respective customers, and generally
without recourse to NACCO and NACoal. Although NACoal owns 100% of the equity and manages the daily operations of the
Unconsolidated Subsidiaries, the Company has determined that the equity capital provided by NACoal is not sufficient to
adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The
customers have a controlling financial interest and have the power to direct the activities that most significantly affect the
economic performance of the entities. As a result, the Company is not the primary beneficiary and therefore does not
consolidate these entities' financial positions or results of operations. See Note 1 for a discussion of these entities.
The income taxes resulting from the operations of the Unconsolidated Subsidiaries are solely the responsibility of the
Company. The pre-tax income from the unconsolidated subsidiaries, excluding NoDak, is reported on the line Earnings of
unconsolidated operations in the Consolidated Statements of Operations, with related income taxes included in the provision
for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Subsidiaries, excluding NoDak, above
operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from
NoDak is reported on the line Income from other unconsolidated affiliates in the Other (income) expense section of the
Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes.
The investment in the unconsolidated subsidiaries and related tax positions totaled $24.6 million and $20.1 million at
December 31, 2019 and 2018, respectively. The Company's maximum risk of loss relating to these entities is limited to its
invested capital, which was $5.0 million and $4.4 million at December 31, 2019 and 2018, respectively.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NACoal is a party to certain guarantees related to Coyote Creek. Under certain circumstances of default or termination of
Coyote Creek’s Lignite Sales Agreement (“LSA”), NACoal would be obligated for payment of a "make-whole" amount to
Coyote Creek’s third party lenders. The “make-whole” amount is based on the excess, if any, of the discounted value of the
remaining scheduled debt payments over the principal amount. In addition, in the event Coyote Creek’s LSA is terminated on
or after January 1, 2024 by Coyote Creek’s customers, NACoal is obligated to purchase Coyote Creek’s dragline and rolling
stock for the then net book value of those assets. To date, no payments have been required from NACoal since the inception of
these guarantees. The Company believes that the likelihood NACoal would be required to perform under the guarantees is
remote, and no amounts related to these guarantees have been recorded.
Summarized financial information for the unconsolidated subsidiaries is as follows:
Statement of Operations
Revenue
Gross profit
Income before income taxes
Net income
Balance Sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
2019
2018
$
$
$
$
$
$
$
$
734,515
72,433
65,183
54,067
183,848
837,477
141,132
875,216
$
$
$
$
$
$
$
$
766,558
76,600
66,270
55,247
182,353
860,049
146,788
891,175
Revenue includes all mine operating costs that are reimbursed by the customers of the Unconsolidated Subsidiaries as well as
the compensation per ton of coal, heating unit (MMBtu) or ton of limestone delivered. Reimbursed costs have offsetting
expenses and have no impact on income before income taxes. Income before income taxes represents the Earnings of the
unconsolidated operations and the Income from other unconsolidated affiliates.
NACoal received dividends of $53.5 million and $56.0 million from the Unconsolidated Subsidiaries in 2019 and 2018,
respectively.
NOTE 18—Related Party Transactions
One of the Company's directors is a retired Jones Day partner. Legal services rendered by Jones Day approximated $1.0 million
and $2.1 million for the years ended December 31, 2019 and 2018, respectively.
Alfred M. Rankin, Jr. retired as the President and Chief Executive Officer of NACCO effective during 2017. Mr. Rankin
continues to serve as the Chairman of the Board of Directors of NACCO and Mr. Rankin supports the President and Chief
Executive Officer of NACCO upon request under the terms of a consulting agreement. Fees for consulting services rendered by
Mr. Rankin approximated $0.5 million and $0.5 million for the years ended December 31, 2019 and 2018, respectively.
Hyster-Yale Materials Handling, Inc. ("Hyster-Yale") is a former subsidiary of the Company that was spun-off to stockholders
in 2012. In the ordinary course of business, NACoal leases or buys Hyster-Yale lift trucks. The terms may not be comparable to
terms that would be obtained in a transaction between unaffiliated parties.
F-33
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
December 31
2019
2018
(In thousands)
ASSETS
Cash and cash equivalents
Accounts receivable from affiliates
Current intercompany accounts receivable, net
Other current assets
Investment in subsidiaries
Property, plant and equipment, net
Other non-current assets
Total Assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of deferred compensation
Note payable to Bellaire
Deferred compensation
Other non-current liabilities
Stockholders’ equity
$
120,016
$
515
1,255
10,448
189,338
167
4,570
326,309
5,257
13,465
16,950
—
1,245
289,392
$
$
$
$
Total Liabilities and Stockholders’ Equity
$
326,309
$
See Notes to Parent Company Condensed Financial Statements.
84,819
2,418
868
4,508
185,653
241
7,851
286,358
5,148
—
17,300
12,939
267
250,704
286,358
F-34
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Expense (income):
Intercompany interest expense
Other, net
Administrative and general expenses
Loss before income taxes
Income tax benefit
Net loss before equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Net income
Current period pension and postretirement plan adjustment, net of $226 expense and $14 tax
benefit in 2019 and 2018, respectively
Pension settlement, net of $202 tax benefit in 2019
Reclassification of pension and postretirement adjustments into earnings, net of $90 and $85
tax benefit in 2019 and 2018, respectively
Total other comprehensive income
Comprehensive Income
See Notes to Parent Company Condensed Financial Statements.
$
Year Ended December 31
2019
2018
(In thousands)
$
1,190
(1,796)
(606)
6,403
(5,797)
(3,819)
(1,978)
41,610
39,632
758
671
845
2,274
1,223
(613)
610
5,962
(6,572)
(676)
(5,896)
40,681
34,785
(301)
—
489
188
$
41,906
$
34,973
F-35
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
Operating Activities
Net income
Equity in earnings of subsidiaries
Parent company only net loss
Net changes related to operating activities
Net cash provided by (used for) operating activities
Investing Activities
Expenditures for property, plant and equipment
Net cash used for investing activities
Financing Activities
Dividends received from subsidiaries
Notes payable to Bellaire
Purchase of treasury shares
Cash dividends paid
Other
Net cash provided by financing activities
Cash and cash equivalents
Increase (decrease) for the period
Balance at the beginning of the period
Balance at the end of the period
See Notes to Parent Company Condensed Financial Statements.
Year Ended December 31
2019
2018
(In thousands)
$
39,632
$
34,785
41,610
(1,978)
3,671
1,693
—
—
42,000
(350)
(3,010)
(5,132)
(4)
33,504
35,197
84,819
$
120,016
$
40,681
(5,896)
(5,496)
(11,392)
(12)
(12)
8,000
(551)
(1,294)
(4,578)
—
1,577
(9,827)
94,646
84,819
F-36
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2019 AND 2018
The notes to Consolidated Financial Statements, incorporated in Item 15 of this Form 10-K, are hereby incorporated by
reference into these Notes to Parent Company Condensed Financial Statements.
NOTE A — ACCOUNTING POLICIES
NACCO Industries, Inc.® (“NACCO” or the “parent company”) is the public holding company for The North American Coal
Corporation® ("NACoal"). In the Parent Company Condensed Financial Statements, NACCO's investment in subsidiaries is
stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. NACCO's share of net income
of unconsolidated subsidiaries is included in net income using the equity method. Parent Company financial statements should
be read in conjunction with the Company's consolidated financial statements.
NOTE B — LONG-TERM OBLIGATIONS AND GUARANTEES
It is NACCO's policy not to guarantee the debt of NACoal.
NOTE C — UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in Investment in subsidiaries, was $0.6 million at
December 31, 2019 and was in addition to the $120.0 million of cash included in the Parent Company Condensed Balance
Sheet at December 31, 2019.
F-37
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 2019 AND 2018
Description
2019
Reserves deducted from asset accounts:
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged to
Other
Accounts
— Describe
Deductions
— Describe
Balance at
End of
Period (A)
(In thousands)
Deferred tax valuation allowances
$ 14,219
$ (1,923) $
—
—
$ 12,296
2018
Reserves deducted from asset accounts:
Deferred tax valuation allowances
$ 13,579
$
639
$
1
$ —
$ 14,219
(A)
Balances which are not required to be presented and those which are immaterial have been omitted.
F-38
SUBSIDIARIES OF NACCO INDUSTRIES, INC.
Exhibit 21
The following is a list of active subsidiaries as of the date of the filing with the Securities and Exchange Commission of the
Annual Report on Form 10 K to which this is an Exhibit. Except as noted, all of these subsidiaries are wholly owned, directly
or indirectly.
Name
America Lignite Energy LLC
Bellaire Corporation
Bisti Fuels Company, LLC
C&H Mining Company, Inc.
Caddo Creek Resources Company, LLC
Camino Real Fuels, LLC
Catapult Mineral Partners, LLC
Centennial Natural Resources, LLC
Coyote Creek Mining Company, LLC
Demery Resources Company, LLC
The Coteau Properties Company
The Falkirk Mining Company
GRENAC, LLC
Liberty Fuels Company, LLC
Mississippi Lignite Mining Company
Mitigation Resources of North America, LLC
Mitigate Alabama, LLC
Mitigate Tennessee, LLC
Mitigate Texas, LLC
NAM - Corkscrew, LLC
NAM - CSA, LLC
NAM - Newberry, LLC
NAM - MCA, LLC
NAM - PBA, LLC
NAM - Pasco, LLC
NAM - Perry, LLC
NAM - QueenField, LLC
NAM - SDI, LLC
NAM - WFA, LLC
NAM - WRQ, LLC
NoDak Energy Investments Corporation
NoDak Energy Services, LLC
The North American Coal Corporation
North American Coal Corporation India Private Limited
North American Mining, LLC
North American Coal Royalty Company
Otter Creek Mining Company LLC
Red Hills Property Company LLC
The Sabine Mining Company
Sawtooth Mining, LLC
Shondenah Energy, LLC
TRU Global Energy Services, LLC
TRU Energy Services, LLC
Reed Minerals, Inc.
Yockanookany Mitigation Resources, LLC
Incorporation
Delaware (50%)
Ohio
Nevada
Alabama
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Ohio
Ohio
Delaware (50%)
Nevada
Texas
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Nevada
Delaware
Delaware
India
Nevada
Delaware
Nevada
Mississippi
Nevada
Nevada
Nevada
Delaware
Nevada
Alabama
Nevada
I, J.C. Butler, Jr., certify that:
Certifications
Exhibit 31(i)(1)
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of NACCO Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 4, 2020
/s/ J.C. Butler, Jr.
J.C. Butler, Jr.
President and Chief Executive Officer
I, Elizabeth I. Loveman, certify that:
Certifications
Exhibit 31(i)(2)
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of NACCO Industries, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected , or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: March 4, 2020
/s/ Elizabeth I. Loveman
Elizabeth I. Loveman
Vice President and Controller
(principal financial officer)
Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NACCO Industries, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the
undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-
Oxley Act of 2002, that, to such officer's knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: March 4, 2020
Date: March 4, 2020
/s/ J.C. Butler, Jr.
J.C. Butler, Jr.
President and Chief Executive Officer
/s/ Elizabeth I. Loveman
Elizabeth I. Loveman
Vice President and Controller
(principal financial officer)
MINE SAFETY DISCLOSURES
Exhibit 95
NACCO Industries, Inc. (the “Company”) believes that The North American Coal Corporation and its affiliated mining
companies (collectively, “NACoal”) is an industry leader in safety. NACoal has health and safety programs in place that
include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation,
regulatory compliance and program auditing. The objectives for NACoal's programs are to eliminate workplace incidents,
comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal or other mine is required to
include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. The operation of
NACoal's mines is subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal
Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA inspects NACoal's mines on a regular basis and issues various
citations and orders when it believes a violation has occurred under the Mine Act. The Company has presented information
below regarding certain mining safety and health matters for NACoal's mining operations for the year ended December 31,
2018. In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders
will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and from
mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and
amount, and are sometimes vacated.
During the year ended December 31, 2019, neither the Company's current mining operations nor it's closed mines: (i) were
assessed any Mine Act section 104(b) orders for alleged failure to totally abate the subject matter of a Mine Act section 104(a)
citation within the period specified in the citation; (ii) were assessed any Mine Act section 110(b)(2) penalties for failure to
correct the subject matter of a Mine Act section 104(a) citation within the specified time period, which failure was deemed
flagrant (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation that substantially and
proximately caused, or reasonably could have been expected to cause, death or serious bodily injury); (iii) received any Mine
Act section 107(a) imminent danger orders to immediately remove miners; or (iv) received any MSHA written notices under
Mine Act section 104(e) of a pattern of violation of mandatory health or safety standards or of the potential to have such a
pattern. In addition, there were no mining-related fatalities at the Company's operations or it's closed mines during the year
ended December 31, 2019.
The following table sets forth the total number of specific citations and orders, the total dollar value of the proposed civil
penalty assessments that were issued by MSHA, the total number of legal actions initiated and resolved before the Federal
Mine Safety and Health Review Commission ("FMSHRC") during the year ended December 31, 2019, and the total number of
legal actions pending before the FMSHRC at December 31, 2019, pursuant to the Mine Act, by individual mine at NACoal:
Mine Act
Section 104
Significant &
Substantial
Citations (2)
Mine Act
Section
104(d)
Citations (3)
Total Dollar
Value of
Proposed
MSHA
Assessment
Number of Legal
Actions Initiated
before the
FMSHRC for the
year ended at
December 31,
2019
Number of Legal
Actions Resolved
before the
FMSHRC for the
year ended at
December 31,
2019
Number of Legal
Actions Pending
before the
FMSHRC at
December 31,
2019 (4)
1
—
—
—
—
1
—
3
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
10
— $
1,604
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
121
365
—
—
2,297
242
2,157
—
—
—
—
—
514
—
154
—
—
123
—
1,709
—
—
—
41,148
—
—
—
—
—
2
$
50,434
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
1
Name of Mine or Quarry (1)
Coteau (Freedom Mine)
Falkirk (Falkirk Mine)
Sabine (South Hallsville No. 1 Mine)
Demery (Five Forks Mine)
Caddo Creek (Marshall Mine)
Camino Real (Eagle Pass Mine)
Coyote Creek (Coyote Creek Mine)
Bisti Fuels (Navajo Mine)
MLMC (Red Hills Mine)
North American Mining Operations:
Card Sound Quarry
White Rock Quarry - North
White Rock Quarry - South
Krome Quarry
Alico Quarry
FEC Quarry
SCL Quarry
Central State Aggregates Quarry
Mid Coast Aggregates Quarry
West Florida Aggregates Quarry
St. Catherine Quarry
Center Hill Quarry
Inglis Quarry
Titan Corkscrew Quarry
Palm Beach Aggregates Quarry
Perry Quarry
SDI Aggregates Quarry
Queensfield Mine
County Line Quarry
Newberry Quarry
Total
(1) Bellaire's, Centennial's and Liberty's closed mines are not included in the table above and did not receive any of the indicated citations.
(2) Mine Act section 104(a) significant and substantial citations are for alleged violations of a mining safety standard or regulation where there exists a
reasonable likelihood that the hazard contributed to or will result in an injury or illness of a reasonably serious nature.
(3) Mine Act section 104(d) citations are for an alleged unwarrantable failure to comply with a mandatory health and safety standard.
(4) The pending legal actions at Krome Quarry and Palm Beach Aggregates Quarry are contests of citations received and contests of proposed penalties.
(THIS PAGE INTENTIONALLY LEFT BLANK)
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
Carroll L. Dewing
Vice President – Operations
Thomas A. Maxwell
Vice President – Financial Planning and
Analysis and Treasurer
LaVern K. Lund
Vice President – Engineering and
Business Development
John D. Neumann
Vice President, General Counsel and
Secretary
John D. Neumann
Vice President, General Counsel and
Secretary
Sarah E. Fry
Associate General Counsel and
Assistant Secretary
Miles B. Haberer
Associate General Counsel
J. Patrick Sullivan, Jr.
Vice President and Chief Financial Officer
Eric A. Dale
Treasurer and Senior Director,
Financial Planning and Analysis
Matthew J. Dilluvio
Associate Counsel and Assistant Secretary
Andrew B. Hart
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
Matthew J. Dilluvio
Associate Counsel and Assistant Secretary
J.C. Butler, Jr.
President and Chief Executive Officer,
NACCO Industries, Inc. and
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
Roger F. Rankin
Self-employed (personal investments)
Lori J. Robinson
Retired General, United States Air Force
Britton T. Taplin
Self-employed (personal investments)
TOGETHER WE DELIVER
CORPORATE INFORMATION
Annual Meeting
The Annual Meeting of Stockholders of NACCO
Industries, Inc. will be held on May 13, 2020, at
11:00 a.m. located at: 5875 Landerbrook Drive,
Cleveland, Ohio 44124
Form 10-K
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.
5875 Landerbrook Drive, Suite 220
Cleveland, Ohio 44124
(440) 229-5130
Stock Transfer Agent and Registrar
Stockholder Correspondence:
Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight Correspondence:
Computershare
462 South 4th St., Suite 1600
Louisville, KY 40202
(800) 622-6757 (U.S., Canada and Puerto Rico)
(781) 575-4735 (International)
Legal Counsel
McDermott Will & Emery LLP
444 West Lake Street
Chicago, Illinois 60606
Independent Registered Public
Accounting Firm
Ernst & Young LLP
950 Main Ave., Suite 1800
Cleveland, Ohio 44113
Stock Exchange Listing
The New York Stock Exchange
Symbol: NC
Investor Relations Contact
Investor questions may be addressed to:
Investor Relations
NACCO Industries, Inc.
5875 Landerbrook Drive, Suite 220
Cleveland, Ohio 44124
(440) 229-5130
E-mail: ir@naccoind.com
NACCO Industries Website
Additional information about NACCO Industries may be
found at www.nacco.com. The Company considers this
website to be one of the primary sources of information
for investors and other interested parties.
North American Coal Website
Additional information about North American
Coal may be found at www.nacoal.com.
With our core competency deeply rooted in mining, our
diverse portfolio of affiliated businesses provides integrated
solutions for our customers .
TRUSTED PARTNERS. INTEGRATED SOLUTIONS.
POWERFUL RESULTS.
Contents
Our Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Selected Financial and Operating Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Inside Back Cover
The Coteau Properties CompanyThe Falkirk Mining CompanyCoyote Creek Mining CompanyNoDak Energy Services LLCThe Sabine Mining CompanyMississippi Lignite Mining CompanyNorth American MiningCorporate Office★Demery Resources CompanyBisti Fuels CompanyCaddo Creek Resource CompanyLiberty Fuels CompanyCamino Real FuelsSurface Coal Mining OperationsNorth American MiningNew Operation Since 2010Value-Added ServicesContents Discussion of Results . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Selected Financial and Operating Data . . . . . . . . . . . . .2 Letter to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . .118Corporate Information . . . . . . . . . . . .Inside Back CoverIndependent Registered Public Accounting FirmErnst & Young LLP950 Main Ave., Suite 1800Cleveland, Ohio 44113Stock Exchange ListingThe New York Stock Exchange Symbol: NCInvestor Relations ContactInvestor questions may be addressed to:Investor RelationsNACCO Industries, Inc.5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130E-mail: ir@naccoind.comNACCO Industries WebsiteAdditional information about NACCO Industries may be found at www.nacco.com. The Company considers this website to be one of the primary sources of information for investors and other interested parties.North American Coal WebsiteAdditional information about North American Coal may be found at www.nacoal.com. Annual MeetingThe Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 16, 2018, at 11:00 a.m. at the corporate office located at: 5875 Landerbrook Drive, Cleveland, Ohio 44124Form 10-KAdditional 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 RelationsNACCO Industries, Inc.5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130Stock Transfer Agent and RegistrarStockholder Correspondence:ComputershareP.O. Box 505000Louisville, KY 40233-5000Overnight Correspondence:Computershare462 South 4th St., Suite 1600Louisville, KY 40202(800) 622-6757 (U.S., Canada and Puerto Rico)(781) 575-4735 (International)Legal CounselMcDermott Will & Emery LLP444 West Lake StreetChicago, Illinois 60606Corporate InformationAnnual MeetingThe Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 9, 2017, at 2:30 p.m. at the corporateoffice located at: 5875 Landerbrook Drive,Cleveland, Ohio 44124Form 10-KAdditional copies of the Company’s Form 10-K filedwith the Securities and Exchange Commission are available free of charge through NACCO Industries’website (www.nacco.com) or by request to: Investor RelationsNACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130Stock Transfer Agent and RegistrarStockholder Correspondence:ComputershareP.O. Box 30170College Station, TX 77842-3170Overnight Correspondence:Computershare211 Quality Circle, Suite 210College Station, TX 77845(800) 622-6757 (U.S., Canada and Puerto Rico)(781) 575-4735 (International)Legal CounselMcDermott Will & Emery LLP227 West Monroe StreetChicago, Illinois 60606Independent Registered Public Accounting FirmErnst & Young LLP950 Main Ave., Suite 1800Cleveland, Ohio 44113Stock Exchange ListingThe New York Stock ExchangeSymbol: NCInvestor Relations ContactInvestor questions may be addressed to:Investor RelationsNACCO Industries, Inc.5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130E-mail: ir@naccoind.comNACCO Industries WebsiteAdditional information on NACCO Industries may be found at the corporate website,www.nacco.com. The Company considers thiswebsite to be one of the primary sources of information for investors and other interested parties. Subsidiary Company WebsitesThe websites for NACCO’s subsidiaries are as follows:Hamilton Beach Brands–U.S.: www.hamiltonbeach.com www.proctorsilex.com www.commercial.hamiltonbeach.comHamilton Beach Brands–Mexico: www.hamiltonbeach.com.mx Weston Brands: www.westonproducts.comKitchen Collection: www.kitchencollection.comNorth American Coal: www.nacoal.com(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)E EnvironmentalBenefitsThis 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: (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) B Annual MeetingThe Annual Meeting of Stockholders of NACCO Industries, Inc. will be held on May 9, 2017, at 2:30 p.m. at the corporateoffice located at: 5875 Landerbrook Drive,Cleveland, Ohio 44124Form 10-KAdditional copies of the Company’s Form 10-K filedwith the Securities and Exchange Commission are available free of charge through NACCO Industries’website (www.nacco.com) or by request to: Investor RelationsNACCO Industries, Inc. 5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130Stock Transfer Agent and RegistrarStockholder Correspondence:ComputershareP.O. Box 30170College Station, TX 77842-3170Overnight Correspondence:Computershare211 Quality Circle, Suite 210College Station, TX 77845(800) 622-6757 (U.S., Canada and Puerto Rico)(781) 575-4735 (International)Legal CounselMcDermott Will & Emery LLP227 West Monroe StreetChicago, Illinois 60606Independent Registered Public Accounting FirmErnst & Young LLP950 Main Ave., Suite 1800Cleveland, Ohio 44113Stock Exchange ListingThe New York Stock ExchangeSymbol: NCInvestor Relations ContactInvestor questions may be addressed to:Investor RelationsNACCO Industries, Inc.5875 Landerbrook Drive, Suite 220Cleveland, Ohio 44124(440) 229-5130E-mail: ir@naccoind.comNACCO Industries WebsiteAdditional information on NACCO Industries may be found at the corporate website,www.nacco.com. The Company considers thiswebsite to be one of the primary sources of information for investors and other interested parties. Subsidiary Company WebsitesThe websites for NACCO’s subsidiaries are as follows:Hamilton Beach Brands–U.S.: www.hamiltonbeach.com www.proctorsilex.com www.commercial.hamiltonbeach.comHamilton Beach Brands–Mexico: www.hamiltonbeach.com.mx Weston Brands: www.westonproducts.comKitchen Collection: www.kitchencollection.comNorth American Coal: www.nacoal.com(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)E EnvironmentalBenefitsThis 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: (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) 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)E B EnvironmentalBenefitsThis 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: 516 lbs.1,887 lbs. net7,782,60031 lbs. water 4,667 gal.11 trees pre®, Hamilton®. HBB also.Market Positions2016Financial ResultsHBB:HBB is a leading companyin retail and commercialsmall appliances, withstrong share positions in many of the categories in which it competes.HBB products are primarilydistributed through massmerchants, national department stores, whole-sale distributors, otherretail sales outlets andthe Internet.Kitchen Collection: Kitchen Collection is a leading specialty retailer of kitchen and related products in outlet malls with 223 stores throughoutthe United States at December 31, 2016.HBB:Revenues: $605.2 millionOperating profit: $43.0 millionNet income: $26.6 millionEquity: $44.1 millionReturn on Equity:(1)51.1% Return on Capital Employed:(1)30.5% Kitchen Collection: Revenues: $144.4 millionOperating profit: $0.4 millionNet loss: $0.4 millionEquity: $21.4 millionReturn on Equity:(1)(1.6%)NACoal:North American Coal is among the ten largestcoalproducers in theUnited States. Coal is delivered from developed mines in NorthDakota, Texas, Mississippi,Louisiana, and within theNavajo Nation in NewMexico to adjacent ornearby power plants orcoal processing facilities. NACoal:Revenues: $111.1 millionOperating profit: $5.6 million Net income: $8.2 millionAdjusted income:(1)$25.4 millionEquity: $105.6 millionReturn on Equity:(1)7.5% Return on Capital Employed:(1)5.2% B pres B pre 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)E B EnvironmentalBenefitsThis 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: ®, Hamilton®. HBB also.Market Positions2016Financial ResultsHBB:HBB is a leading companyin retail and commercialsmall appliances, withstrong share positions in many of the categories in which it competes.HBB products are primarilydistributed through massmerchants, national department stores, whole-sale distributors, otherretail sales outlets andthe Internet.Kitchen Collection: Kitchen Collection is a leading specialty retailer of kitchen and related products in outlet malls with 223 stores throughoutthe United States at December 31, 2016.HBB:Revenues: $605.2 millionOperating profit: $43.0 millionNet income: $26.6 millionEquity: $44.1 millionReturn on Equity:(1)51.1% Return on Capital Employed:(1)30.5% Kitchen Collection: Revenues: $144.4 millionOperating profit: $0.4 millionNet loss: $0.4 millionEquity: $21.4 millionReturn on Equity:(1)NACoal:North American Coal is among the ten largestcoalproducers in theUnited States. Coal is delivered from developed mines in NorthDakota, Texas, Mississippi,Louisiana, and within theNavajo Nation in NewMexico to adjacent ornearby power plants orcoal processing facilities. NACoal:Revenues: $111.1 millionOperating profit: $5.6 million Net income: $8.2 millionAdjusted income:(1)$25.4 millionEquity: $105.6 millionReturn on Equity:(1)7.5% Return on Capital Employed:(1)5.2% B pres B B The FSC® Trademark identifies wood fibers coming from forests which have been certified 5875 Landerbrook Drive, Suite 220 • Cleveland, Ohio 44124
An Equal Opportunity Employer
®