NACCO INDUSTRIES INC 10-K

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 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, 2020. The Company's effectiveness of internal control over financial reporting as of December 31, 2020 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 2020, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B . OTHER INFORMATION None. 55 Table of Contents PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information with respect to Directors of the Company will be set forth in the 2021 Proxy Statement under the subheadings “Part III — Proposals To Be Voted On At The 2021 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 2021 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 2021 Proxy Statement under the subheading “Part IV — Other Important Information — Delinquent Section 16(a) Reports,” 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 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 2021 Proxy Statement under the headings “Part II — Executive Compensation Information” and “Part III — Proposals To Be Voted On At The 2021 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 2021 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 2021 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 2021 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 2021 Proxy Statement under the heading “Part III — Proposals To Be Voted On At The 2021 Annual Meeting — Proposal 4 — Ratification of the Appointment of Company's Independent Registered Public Accounting Firm,” which information is incorporated herein by reference. 56 Table of Contents PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (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-39 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) 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. 3.1(ii) 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 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. 4.2 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. 4.3 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. 4.4 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. 4.5 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 Second Amendment to Amended and Restated Stockholders' Agreement, dated as of February 12, 2021, by and among the Depository, NACCO Industries, Inc., the new Participating Stockholders identified on the signature pages thereto and the Participating Stockholders under the Amended and Restated Stockholders' Agreement, dated as of September 29, 2017, as amended, is incorporated by reference to Exhibit 60 of the Company's General statement of acquisition of beneficial ownership on Form SC 13D, filed on February 12, 2021 , Commission File Number 1-9172. 4.7 Description of Securities is incorporated herein by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Commission File Number 1-9172. 57 Table of Contents 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* 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. 10.3* 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. 10.4* 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. 10.5* Form of Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Commission File Number 1-9172. 10.6* 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 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Commission File Number 1-9172. 10.7 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. 10.8 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. 10.9 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. 10.10 Amendment to Consulting Agreement, dated as of December 15, 2020, between NACCO Industries, Inc. and Alfred M. Rankin, Jr., is incorporated by reference to Exhibit 10.1 of NACCO Industries, Inc.'s Current Report on Form 8-K, filed on December 15, 2020, Commission File Number 1-9172. 10.11 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. 10.12* 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. 10.13* 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. 10.14* 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. 10.15* 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. 10.16* 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. 10.17 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.+ 10.18 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.+ 58 Table of Contents Exhibit Number Exhibit Description 10.19 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.+ 10.20 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. 10.21 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. 10.22 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.+ 10.23 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.+ 10.24 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. 10.25 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. 10.26 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. 10.27 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.+ 10.28 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. 10.29 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. 10.30 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. 10.31 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. 10.32 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.+ 10.33 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. 59 Table of Contents Exhibit Number Exhibit Description 10.34 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. 10.35 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. 10.36 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. 10.37 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. 10.38 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. 10.39 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.++ 10.40 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. 10.41 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. 10.42* 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. 10.43* 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. 10.44* 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. 10.45* 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. 10.46 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 . 10.47 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. 10.48 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. 60 Table of Contents (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 A copy of a power of attorney for John S. Dalrymple is attached hereto as Exhibit 24.1. 24.2 A copy of a power of attorney for John P. Jumper is attached hereto as Exhibit 24.2. 24.3 A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24.3. 24.4 A copy of a power of attorney for Michael S. Miller is attached hereto as Exhibit 24. 4 . 24.5 A copy of a power of attorney for Richard de J. Osborne is attached hereto as Exhibit 24. 5 . 24.6 A copy of a power of attorney for Alfred M. Rankin, Jr. is attached hereto as Exhibit 24. 6 . 24.7 A copy of a power of attorney for Matthew M. Rankin is attached hereto as Exhibit 24. 7 . 24.8 A copy of a power of attorney for Roger F. Rankin is attached hereto as Exhibit 24. 8 . 24.9 A copy of a power of attorney for Lori J. Robinson is attached hereto as Exhibit 24. 9 . 24.10 A copy of a power of attorney for Robert S. Shapard is attached hereto as Exhibit 24.10. 24.11 A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24.1 1 . (31) Rule 13a-14(a)/15d-14(a) Certifications. 31(i)(1) 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). 31(i)(2) 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). (32) Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by J.C. Butler, Jr. and Elizabeth I. Loveman. (95) Mine Safety Disclosure Exhibit is attached hereto as Exhibit 95. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * 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". 61 Table of Contents SIGNATURES 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. NACCO Industries, Inc. By: /s/ Elizabeth I. Loveman Elizabeth I. Loveman Vice President and Controller (principal financial and accounting officer) March 3, 2021 62 Table of Contents 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. President and Chief Executive Officer (principal executive officer) March 3, 2021 J.C. Butler, Jr. /s/ Elizabeth I. Loveman Vice President and Controller (principal financial and accounting officer) March 3, 2021 Elizabeth I. Loveman *John S. Dalrymple Director March 3, 2021 John S. Dalrymple * John P. Jumper Director March 3, 2021 John P. Jumper * Dennis W. LaBarre Director March 3, 2021 Dennis W. LaBarre * Michael S. Miller Director March 3, 2021 Michael S. Miller * Richard de J. Osborne Director March 3, 2021 Richard de J. Osborne * Alfred M. Rankin, Jr. Director March 3, 2021 Alfred M. Rankin, Jr. * Matthew M. Rankin Director March 3, 2021 Matthew M. Rankin * Roger F. Rankin Director March 3, 2021 Roger F. Rankin *Lori J. Robinson Director March 3, 2021 Lori J. Robinson *Robert S. Shapard Director March 3, 2021 Robert S. Shapard * Britton T. Taplin Director March 3, 2021 Britton T. Taplin * 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 March 3, 2021 Elizabeth I. Loveman, Attorney-in-Fact 63 Table of Contents 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, 2020 NACCO INDUSTRIES, INC. CLEVELAND, OHIO F-1 Table of Contents 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, 2020. F- 3 Report of Ernst & Young LLP, Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting — As of December 31, 2020. F- 5 Consolidated Statements of Operations F- 6 Consolidated Statements of Comprehensive Income (Loss) F- 7 Consolidated Balance Sheets F- 8 Consolidated Statements of Cash Flows F- 9 Consolidated Statements of Equity F- 10 Notes to Consolidated Financial Statements F- 11 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 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors 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, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for the years then ended, 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, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, 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, 2020, 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 3, 2021 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit review committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. F-3 Table of Contents Asset Retirement Obligations Liability Description of the Matter At December 31, 2020, the Company’s aggregate asset retirement obligations were approximately $41.7 million. As discussed in Note 7 to consolidated financial statements, the Company’s obligations associated with the retirement of long-lived assets are recognized at fair value at the time the legal obligations are incurred. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying value of the related long-lived asset. The Company reviewed its asset retirement obligations at each mine site and made necessary adjustments for permit changes and for revisions of estimates of the timing and extent of reclamation activities and cost estimates. Management’s estimate involves a high degree of subjectivity and auditing the significant assumptions utilized by management in estimating the fair value of the liability requires judgement. In particular, the obligation’s fair value is determined using a discounted cash flow technique and is based upon mining permit requirements and various assumptions including credit adjusted risk-free-rates, estimates of disturbed acreage, life of the mine, estimated reclamation costs, the application of various environmental laws and regulations and assumptions regarding equipment productivity. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated and tested the design and operating effectiveness of the controls surrounding the Company’s processes to determine the fair value of the asset retirement obligations. This included controls related to estimating the future cash expenditures to reclaim each mine site and other key assumptions underlying the calculation of the obligation. To test the asset retirement obligation, our audit procedures included, among other things, evaluating the methodology used, the significant assumptions referenced above, and the underlying data used by the Company. We evaluated the credit-adjusted risk-free rate applied to calculate the net present value of the obligation as compared to observable market data. We involved our mine reclamation specialists to assist in testing the significant assumptions. Specifically, we evaluated the estimates of the life of mines the Company used in calculating its significant reclamation obligations based on the known mineral reserves and expected production, and consideration of the estimate of disturbed acreage through inspection of permits, approved site restoration plans and restoration area schematics. We assessed the identification of reclamation activities by the Company’s mine engineers by comparison to environmental laws and regulations and the likely cost of the reclamation activities as determined by the Company’s mine engineers compared with historical amounts, published pricing data and other publicly available information. We recalculated the reclamation obligations using management’s model. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Cleveland, Ohio March 3, 2021 F-4 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors 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, 2020, 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, 2020, 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 2020 consolidated financial statements of the Company and our report dated March 3, 2021 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 3, 2021 F-5 Table of Contents NACCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31 2020 2019 (In thousands, except per share data) Revenues $ 128,432 $ 140,990 Cost of sales 111,463 109,862 Gross profit 16,969 31,128 Earnings of unconsolidated operations 60,203 63,883 Operating expenses Selling, general and administrative expenses 53,062 53,783 Amortization of intangible assets 2,572 2,614 Gain on sale of assets ( 269 ) ( 206 ) Asset impairment charges 8,359 — 63,724 56,191 Operating profit 13,448 38,820 Other (income) expense Interest expense 1,354 872 Interest income ( 1,200 ) ( 3,616 ) Income from other unconsolidated affiliates ( 239 ) ( 1,300 ) Closed mine obligations 1,641 1,537 Gain on equity securities ( 1,226 ) ( 1,545 ) Other, net ( 1,140 ) ( 527 ) ( 810 ) ( 4,579 ) Income before income tax (benefit) provision 14,258 43,399 Income tax (benefit) provision ( 535 ) 3,767 Net income $ 14,793 $ 39,632 Earnings per share: Basic earnings per share $ 2.11 $ 5.68 Diluted earnings per share $ 2.10 $ 5.66 Basic weighted average shares outstanding 7,026 6,974 Diluted weighted average shares outstanding 7,057 7,007 See notes to the Consolidated Financial Statements. F-6 Table of Contents NACCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Year Ended December 31 2020 2019 (In thousands) Net income $ 14,793 $ 39,632 Other comprehensive income Current period pension and postretirement plan adjustment, net of $ 213 tax benefit and $ 226 tax expense in 2020 and 2019, respectively ( 697 ) 758 Pension settlement, net of $ 202 tax benefit in 2019 — 671 Reclassification of pension and postretirement adjustments into earnings, net of $ 129 and $ 90 tax benefit in 2020 and 2019, respectively 435 845 Total other comprehensive income ( 262 ) 2,274 Comprehensive income $ 14,531 $ 41,906 See notes to the Consolidated Financial Statements. F-7 Table of Contents NACCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31 2020 2019 (In thousands, except share data) ASSETS Current assets Cash and cash equivalents $ 88,450 $ 122,892 Trade accounts receivable 18,894 15,444 Accounts receivable from affiliates 4,764 6,411 Inventories 47,551 40,465 Refundable federal income taxes 17,615 8,928 Prepaid expenses and other 10,872 6,528 Total current assets 188,146 200,668 Property, plant and equipment, net 172,417 138,061 Intangibles, net 35,330 37,902 Investment in unconsolidated subsidiaries 28,978 24,611 Operating lease right-of-use assets 10,324 11,398 Other non-current assets 40,984 32,133 Total assets $ 476,179 $ 444,773 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 5,522 $ 9,374 Accounts payable to affiliates 125 577 Revolving credit agreements 20,000 7,000 Current maturities of long-term debt 2,112 795 Asset retirement obligations 1,844 2,285 Accrued payroll 14,430 19,583 Deferred compensation — 13,465 Other current liabilities 8,224 8,887 Total current liabilities 52,257 61,966 Long-term debt 24,353 17,148 Operating lease liabilities 11,196 12,448 Asset retirement obligations 39,888 34,574 Pension and other postretirement obligations 8,838 8,807 Deferred income taxes 17,550 12,338 Liability for uncertain tax positions 9,413 1,912 Other long-term liabilities 12,060 6,188 Total liabilities 175,555 155,381 Stockholders’ equity Common stock: Class A, par value $ 1 per share, 5,489,615 shares outstanding (2019 - 5,397,458 shares outstanding) 5,490 5,397 Class B, par value $ 1 per share, convertible into Class A on a one -for-one basis, 1,568,210 shares outstanding (2019 - 1,568,670 shares outstanding) 1,568 1,569 Capital in excess of par value 10,895 8,911 Retained earnings 294,270 284,852 Accumulated other comprehensive loss ( 11,599 ) ( 11,337 ) Total stockholders’ equity 300,624 289,392 Total liabilities and equity $ 476,179 $ 444,773 See notes to the Consolidated Financial Statements. F-8 Table of Contents NACCO INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31 2020 2019 (In thousands) Operating Activities Net income $ 14,793 $ 39,632 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 18,114 16,240 Amortization of deferred financing fees 334 334 Deferred income taxes 7,517 8,698 Stock-based compensation 3,078 4,924 Gain on sale of assets ( 269 ) ( 206 ) Inventory impairment charge 1,973 — Other asset impairment charges 8,359 — Other ( 3,786 ) ( 7,405 ) Working capital changes: Affiliates receivable/payable 20 1,903 Accounts receivable 42 8,221 Inventories ( 9,361 ) ( 9,256 ) Other current assets ( 2,582 ) 1,432 Accounts payable ( 10,622 ) ( 388 ) Income taxes receivable/payable ( 10,790 ) ( 5,447 ) Other current liabilities ( 19,306 ) ( 5,898 ) Net cash (used for) provided by operating activities ( 2,486 ) 52,784 Investing Activities Expenditures for property, plant and equipment ( 30,187 ) ( 24,664 ) Acquisition of mineral interests ( 14,181 ) — Proceeds from the sale of assets 571 4,572 Purchase of equity securities ( 2,000 ) — Other ( 187 ) ( 170 ) Net cash used for investing activities ( 45,984 ) ( 20,262 ) Financing Activities Net additions to revolving credit agreement 14,000 12,000 Additions to long-term debt 7,427 2,000 Reductions to long-term debt ( 1,354 ) ( 742 ) Cash dividends paid ( 5,375 ) ( 5,132 ) Purchase of treasury shares ( 1,002 ) ( 3,010 ) Other 332 ( 3 ) Net cash provided by financing activities 14,028 5,113 Cash and Cash Equivalents Total (decrease) increase for the year ( 34,442 ) 37,635 Balance at the beginning of the year 122,892 85,257 Balance at the end of the year $ 88,450 $ 122,892 See notes to the Consolidated Financial Statements. F-9 Table of Contents 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) Total Stockholders' Equity (In thousands, except per share data) Balance, January 1, 2019 $ 5,352 $ 1,569 $ 7,042 $ 250,352 $ ( 13,611 ) $ 250,704 Stock-based compensation 117 — 4,807 — — 4,924 Purchase of treasury shares ( 72 ) — ( 2,938 ) — — ( 3,010 ) Net income — — — 39,632 — 39,632 Cash dividends on Class A and Class B common stock: $ 0.7350 per share — — — ( 5,132 ) — ( 5,132 ) Current period other comprehensive income, net of tax — — — — 758 758 Pension settlement, net of tax — — — — 671 671 Reclassification adjustment to net income, net of tax — — — — 845 845 Balance, December 31, 2019 $ 5,397 $ 1,569 $ 8,911 $ 284,852 $ ( 11,337 ) $ 289,392 Stock-based compensation 124 — 2,954 — — 3,078 Purchase of treasury shares ( 32 ) — ( 970 ) — — ( 1,002 ) Conversion of Class B to Class A shares 1 ( 1 ) — — — — Net income — — — 14,793 — 14,793 Cash dividends on Class A and Class B common stock: $ 0.7675 per share — — — ( 5,375 ) — ( 5,375 ) Current period other comprehensive income, net of tax — — — — ( 697 ) ( 697 ) Reclassification adjustment to net income, net of tax — — — — 435 435 Balance, December 31, 2020 $ 5,490 $ 1,568 $ 10,895 $ 294,270 $ ( 11,599 ) $ 300,624 See notes to the Consolidated Financial Statements. F-10 Table of Contents 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. ® (“NACCO” or the "Company"). NACCO, through a portfolio of mining and natural resources businesses, operates under three business 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 an activated carbon producer 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 acquires and promotes the development of oil, gas and coal mineral interests, generating income primarily from royalty-based lease payments from third parties. In addition, the Company has a business providing stream and wetland mitigation solutions. The Company also has unallocated items not directly attributable to a reportable segment. Intercompany accounts and transactions are eliminated in consolidation. 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 During 2020, the Company's operating coal mines were: Bisti Fuels Company, LLC (“Bisti”), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”). The Company operates these mines as the North American Coal Corporation ® ("NACoal"). Sabine operates the Sabine Mine in Texas. All production from Sabine is delivered to Southwestern Electric Power Company's (“SWEPCO”) Henry W. Pirkey Plant (the “Pirkey Plant”). SWEPCO is an American Electric Power (“AEP”) company. On November 5, 2020, AEP announced it intends to retire the Pirkey Plant in 2023 in order to comply with the U.S. Environmental Protection Agency’s Coal Combustion Residuals rule. The Sabine Mine delivered 1.9 million and 2.6 million tons to the Pirkey Plant in 2020 and 2019, respectively. During 2020, SWEPCO reduced its expected future annual delivery requirements to be between 1.4 million and 1.7 million tons. The Sabine Mine contributed $ 3.9 million and $ 4.6 million to Earnings from Unconsolidated Operations during 2020 and 2019, respectively. Coteau operates the Freedom Mine in North Dakota. All coal production from the Freedom Mine is delivered to Basin Electric Power Cooperative (“Basin Electric”). Basin Electric utilizes the coal at the Great Plains Synfuels Plant (the “Synfuels Plant”), Antelope Valley Station and Leland Olds Station. The Synfuels Plant is a coal gasification plant that manufactures synthetic natural gas and produces fertilizers, solvents, phenol, carbon dioxide, and other chemical products for sale. On November 5, 2020, Basin Electric informed its employees and Coteau that it is considering changes that may result in modifications to its Synfuels Plant that could potentially reduce or eliminate coal requirements at the Synfuels Plant beginning in 2026. Basin Electric indicated that if it decides to proceed with any changes that could reduce or eliminate the use of coal, the feedstock change is not expected to occur before 2026. As a result, coal deliveries to the Synfuels Plant are expected to continue until at least 2026. On September 30, 2020, Caddo Creek's customer, a division of Cabot Corporation, entered into a long-term supply agreement with a subsidiary of Advanced Emissions Solutions (“AES”) as well as an agreement for the sale of the Marshall Mine, operated by Caddo Creek, to a subsidiary of AES. AES announced its intent to close the Marshall Mine. Caddo Creek entered into a contract with a subsidiary of AES to perform the required mine reclamation. The Marshall Mine delivered 0.1 million and 0.2 million tons during 2020 and 2019, respectively. The contract mining agreement between Camino Real and its customer, Dos Republicas Coal Partnership (“DRCP”), terminated effective July 1, 2020 as a result of the unexpected termination by Comisión Federal de Electricidad (“CFE”) of its coal supply contract with an affiliate of DRCP. The termination of the contract between CFE and DRCP eliminated DRCP’s need for coal from Camino Real's Eagle Pass Mine, and resulted in mine closure. Mine reclamation is the responsibility of DRCP. Camino Real has no legal obligation to perform mine reclamation. The Eagle Pass Mine delivered 0.3 million and 1.6 million tons during 2020 and 2019, respectively. F-11 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) On May 7, 2020, Great River Energy ("GRE"), Falkirk's customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022 and modify the Spiritwood Station power plant to be fueled by natural gas. As noted in the announcement, GRE is willing to consider opportunities to sell Coal Creek Station. Falkirk Mine is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract under which Falkirk also supplies approximately 0.3 million tons of lignite coal per year to Spiritwood Station. Falkirk delivered a total of 7.2 million and 7.4 million tons of lignite coal and contributed $ 16.1 million and $ 15.9 million to Earnings from Unconsolidated Operations during 2020 and 2019, respectively. 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. See Note 17 for further information on the Unconsolidated Subsidiaries. Camino Real and Caddo Creek previously met the definition of a VIE of which the Company was not the primary beneficiary and therefore NACCO did not consolidate the results of operations within its financial statements. As a result of the events described above, Camino Real and Caddo Creek are no longer VIEs. Camino Real’s and Caddo Creek's financial positions were consolidated within NACCO’s financial statements during the second quarter of 2020 and the fourth quarter of 2020, respectively. During 2020, the consolidation of these entities did not materially change the Company’s Consolidated Statements of Operations and Consolidated Balance Sheet. 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. 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 of mining activities 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. In addition, NAMining will serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada. NAMining utilizes both fixed price and management fee contract structures. Certain of the entities within the NAMining segment are VIEs and are accounted for under the equity method as Unconsolidated Subsidiaries. See Note 17 for further discussion. F-12 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) Minerals Management Segment The Minerals Management segment derives income primarily by leasing its royalty and mineral interests to third-party exploration and production companies, and, to a lesser extent, other mining companies, granting them the rights to explore, develop, mine, produce, market and sell gas, oil, and coal in exchange for royalty payments based on the lessees' sales of those minerals. During 2020, the Minerals Management segment acquired mineral interests in the Permian Basin in Texas and intends to make future acquisitions of mineral and royalty interests that meet the Company’s acquisition criteria as part of its growth strategy. The Company’s legacy royalty and mineral interests 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 legacy reserves were acquired as part of its historical coal mining operations. 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. Royalty Interests in Oil and Natural Gas Properties: The Company follows the successful efforts method of accounting for oil and natural gas operations. Under this method, costs to acquire mineral and royalty interests in oil and natural gas properties are capitalized when incurred. Acquisitions of royalty interests of oil and natural gas properties are considered asset acquisitions and are recorded at cost. During the year ended December 31, 2020, the Company closed on multiple acquisitions of mineral and royalty interests for total consideration of $ 14.2 million, of which $ 12.0 million closed in December 2020, $ 2.0 million closed in November 2020 and $ 0.2 million closed in August 2020. These acquisitions are all located in the Permian Basin in Texas. The Company did not acquire any mineral interests in 2019. Acquisition costs of proven royalty interests are amortized using the units of production method over the life of the property, which is estimated using proven reserves. For purposes of amortization, interests in oil and natural gas properties are grouped in a reasonable aggregation of properties with common geological structural features or stratigraphic condition. The Company did not recognize any amortization expense related to the Company’s royalty interests in oil and natural gas properties for the year ended December 31, 2020. The Company reviews and evaluates its royalty interests in oil and natural gas properties for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Proven oil and gas properties are reviewed for impairment when events and circumstances indicate a potential decline in the fair value of such properties below the carrying value, such as a downward revision of the reserve estimates or lower commodity prices. When such events or changes in circumstances occur, the Company estimates the undiscounted future cash flows expected in connection with the F-13 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) properties and compares such future cash flows to the carrying amounts of the properties to determine if the carrying amounts are recoverable. If the carrying value of the properties is determined to not be recoverable based on the undiscounted cash flows, an impairment charge is recognized by comparing the carrying value to the estimated fair value of the properties. 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 or asset group 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 or asset group 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. See Note 9 for further discussion of the Company's nonrecurring fair value measurements. 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, including reductions related to reduced mechanical availability of the customer’s power plant, would adversely affect the Company's operating results and could result in significant impairments. MLMC has approximately $ 135 million of long-lived assets, including property, plant and equipment and its coal supply agreement intangible asset, which are subject to periodic impairment analyses and review. Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in future sales price, operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment. Actual future operating results could differ significantly from these estimates, which may result in an impairment charge in a future period, which could have a substantial impact on the Company’s results of operations. 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 expires in 2032. 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, 2020 and December 31, 2019, 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 79,380 and 85,567 shares related to the years ended December 31, 2020 and 2019, respectively. After the issuance of these shares, there were 335,053 shares of Class A common stock available for issuance under these plans. Compensation expense related to these share awards was $ 2.0 million ($ 1.6 million net of tax) and $ 4.1 million ($ 3.3 million net of tax) for the years ended December 31, 2020 and 2019, 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, 2020, $ 100,000 ($ 150,000 for the Chairman) of the non-employee director's annual retainer of $ 162,000 ($ 250,000 for the Chairman) was 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. 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 F-14 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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 42,744 and 22,258 shares related to the years ended December 31, 2020 and 2019, 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 745 in 2020 and 432 in 2019. After the issuance of these shares, there were 33,821 shares of Class A common stock available for issuance under this plan. Compensation expense related to these awards was $ 1.0 million ($ 0.8 million net of tax) and $ 1.1 million ($ 0.9 million net of tax) for the years ended December 31, 2020 and 2019, 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, equity securities, 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. 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. 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. On September 30, 2020, Caddo Creek entered into a fixed-price contract to perform mine reclamation. The management service to perform mine reclamation 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. Revenue from this contract is recognized over time utilizing the cost-to-cost method to measure the extent of progress toward completion of the performance obligation. The Company believes the cost-to-cost method is the most appropriate method to measure progress and that the rate at which costs are incurred to fulfill the contract best depicts the transfer of control to the customer. The extent of progress towards completion is measured based on the ratio of costs incurred to date compared to total estimated costs at completion, and revenue is recorded proportionally based on an estimated profit margin. 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 F-15 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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 Company believes that the pricing provisions of royalty contracts are customary in the industry. Up-front lease bonus payments represent the fixed portion of the transaction price and are 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 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. Recognition of revenue and recognition of profit related to the Caddo Creek contract requires the use of assumptions and estimates related to the total contract value, the total cost at completion, and the measurement of progress towards completion of the performance obligation. Due to the nature of the contract, developing the estimated total contract value and total cost at completion requires the use of significant judgment. The total contract value includes variable consideration. The Company includes variable consideration in the transaction price at the most likely amount to be earned, based upon the Company’s assessment of expected performance. The Company records these amounts only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Prior Period Performance Obligations The Company records royalty income in the month production is delivered to the purchaser. As a non-operator, the Company has limited visibility into the timing of when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered. As a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The expected sales volumes and prices for these properties are estimated and recorded in "Accounts receivable" in the accompanying Consolidated Balance Sheets. The difference between the Company’s estimates and the actual amounts received is recorded in the month that payment is received from the third party lessee. For the years ended December 31, 2020 and 2019, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial. F-16 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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 2020 2019 Coal Mining $ 72,088 $ 68,701 NAMining 42,392 42,823 Minerals Management 14,721 30,119 Unallocated Items 2,133 790 Eliminations ( 2,902 ) ( 1,443 ) Total revenues $ 128,432 $ 140,990 Timing of Revenue Recognition Goods transferred at a point in time $ 68,073 $ 66,102 Services transferred over time 60,359 74,888 Total revenues $ 128,432 $ 140,990 Contract Balances The opening and closing balances of the Company’s current and long-term contract liabilities and receivables are as follows: Contract balances Trade accounts receivable, net Long-term asset Contract liability (current) Contract liability (long-term) Balance at January 1, 2020 $ 15,444 $ 1,977 $ 944 $ 2,153 Balance at December 31, 2020 18,894 4,984 941 3,626 Increase (decrease) $ 3,450 $ 3,007 $ ( 3 ) $ 1,473 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 both of the years ended December 31, 2020 and December 31, 2019 that was included in the opening contract liability was $ 0.9 million. 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 2021, $ 3.1 million in 2022, $ 0.3 million in 2023, and $ 0.1 million in 2024 related to the contract liability remaining at December 31, 2020. The difference between the opening and closing balances of the Company’s contract balances results from the timing difference between the Company’s performance and the customer’s payment. The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer. F-17 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) NOTE 4— Inventories Inventories are summarized as follows: December 31 2020 2019 Coal $ 17,695 $ 15,700 Mining supplies 29,856 24,765 Total inventories $ 47,551 $ 40,465 During 2020, the Company recorded a $ 2.0 million inventory impairment charge in the line “Cost of sales” in the accompanying Consolidated Statements of Operations as mining costs exceeded net realizable value at MLMC. NOTE 5— Property, Plant and Equipment, Net Property, plant and equipment, net includes the following: December 31 2020 2019 Coal lands and real estate $ 50,887 $ 54,647 Mineral interests 14,181 — Plant and equipment 231,190 190,868 Property, plant and equipment, at cost 296,258 245,515 Less allowances for depreciation, depletion and amortization 123,841 107,454 $ 172,417 $ 138,061 Total depreciation, depletion and amortization expense on property, plant and equipment was $ 15.5 million and $ 13.6 million during 2020 and 2019, respectively. NOTE 6— Intangible Assets The Company has a coal supply agreement intangible asset which is subject to amortization based on units of production over the term of the lignite sales agreement which expires in 2032. The gross and net balances are set forth in the following table: Gross Carrying Amount Accumulated Amortization Net Balance Balance at December 31, 2020 Coal supply agreement $ 84,200 $ ( 48,870 ) $ 35,330 Balance at December 31, 2019 Coal supply agreement $ 84,200 $ ( 46,298 ) $ 37,902 Amortization expense for intangible assets was $ 2.6 million in both 2020 and 2019. Expected annual amortization expense of the coal supply agreement for the next five years is as follows: $ 3.1 million in 2021 and 2022, $ 3.2 million in 2023, $ 3.1 million in 2024 and $ 3.2 million in 2025, respectively. NOTE 7— Asset Retirement Obligations The Company’s obligations associated with the retirement of long-lived assets are recognized at fair value at the time the legal obligations are incurred. Upon initial recognition of a liability, a corresponding amount is capitalized as part of the carrying value of the related long-lived asset and is depreciated either by the straight-line method or the units-of-production method. The liability is accreted each period until the liability is settled, at which time the liability is removed. If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized. F-18 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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. Management’s estimate involves a high degree of subjectivity. In particular, the obligation’s fair value is determined using a discounted cash flow technique and is based upon mining permit requirements and various assumptions including credit adjusted risk-free-rates, estimates of disturbed acreage, life of the mine, estimated reclamation costs, the application of various environmental laws and regulation and assumptions regarding equipment productivity. The Company reviews its asset retirement obligations at each mine site at least annually and makes necessary adjustments for permit changes and for revisions of estimates of the timing and extent of reclamation activities and cost estimates. 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. A reconciliation of the Company's beginning and ending aggregate carrying amount of the asset retirement obligations are as follows: Coal Mining NAMining Unallocated Items NACCO Consolidated Balance at January 1, 2019 $ 20,396 $ 485 $ 16,822 $ 37,703 Liabilities incurred during the period — 91 — 91 Liabilities settled during the period ( 8,265 ) — ( 752 ) ( 9,017 ) Accretion expense 1,260 28 1,323 2,611 Revision of estimated cash flows 5,624 — ( 153 ) 5,471 Balance at December 31, 2019 $ 19,015 $ 604 $ 17,240 $ 36,859 Liabilities incurred during the period 9,809 — — 9,809 Liabilities settled during the period ( 5,977 ) — ( 732 ) ( 6,709 ) Accretion expense 1,793 — 1,022 2,815 Revision of estimated cash flows 400 ( 604 ) ( 838 ) ( 1,042 ) Balance at December 31, 2020 $ 25,040 $ — $ 16,692 $ 41,732 Asset retirement obligations are incurred at the time development of a new mine or mine area commences. During 2020, MLMC began development of a new mine area and as such, recorded an additional $ 9.8 million asset retirement obligation and a corresponding $ 9.8 million asset was capitalized as a component of Property, plant and equipment, net. The asset retirement obligation’s fair value was determined using a discounted cash flow technique and is based upon permit requirements and various estimates and assumptions that would be used by market participants, including estimates of disturbed acreage, reclamation costs and assumptions regarding equipment productivity. Centennial Natural Resources (“Centennial”) ceased coal production at the end of 2015. During 2020, the Company transferred the mine permits for certain Centennial mines to an unrelated third party. As a result of the transfer of the mine permits, the Company was relieved of the associated mine reclamation obligations and therefore recorded a $ 4.8 million reduction to Centennial's asset retirement obligation, included in "Liabilities settled during the period" in the table above. As part of the transfer of the mine permits, the Company paid $ 3.8 million of cash, recorded $ 1.4 million in Other assets for amounts owed to Centennial from the third-party acquirer, and recognized $ 2.4 million in Other long-term liabilities in the Consolidated Balance Sheets. The liabilities are associated with amounts due to the third-party acquirer upon transfer or replacement of the surety bonds and the fair value of the obligation to stand ready to perform in the event there is a claim under the surety bonds. As of December 31, 2020, the Company has $ 5.8 million of surety bonds outstanding related to the mines associated with the transferred mine permits. The third party that acquired the mine permits is required as part of the transaction to transfer or replace the outstanding surety bonds as soon as it is able. If there is a claim under these surety bonds prior to the transfer or replacement of such bonds, the Company would be responsible to the surety company for any amounts it pays with respect to such claim, up to the amount of the outstanding surety bonds. F-19 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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” 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” 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” in the table above. Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The 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. The fair value of Bellaire's Mine Water Treatment assets, which are recognized as a component of Other non-current assets on the Consolidated Balance Sheets, are $ 11.1 million and $ 10.1 million at December 31, 2020 and December 31, 2019, respectively, 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. 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: December 31 2020 2019 Total outstanding borrowings of NACoal: Revolving credit agreement $ 30,000 $ 16,000 Other debt 16,465 8,943 Total debt outstanding $ 46,465 $ 24,943 Current portion of borrowings outstanding $ 22,112 $ 7,795 Long-term portion of borrowings outstanding 24,353 17,148 $ 46,465 $ 24,943 Total available borrowings, net of limitations, under revolving credit agreement $ 146,951 $ 148,644 Unused revolving credit agreement $ 116,951 $ 132,644 Weighted average stated interest rate on total borrowings 2.3 % 5.1 % F-20 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) Annual maturities of total debt, excluding leases, are as follows: 2021 20,924 2022 10,956 2023 990 2024 1,025 2025 1,061 Thereafter 10,041 $ 44,997 Interest paid on total debt was $ 1.4 million and $ 0.9 million during 2020 and 2019, 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 $ 30.0 million at December 31, 2020. At December 31, 2020, the excess availability under the NACoal Facility was $ 117.0 million, which reflects a reduction for outstanding letters of credit of $ 3.0 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, 2020, 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, 2020. The weighted average interest rate applicable to the NACoal Facility at December 31, 2020 was 1.88 % 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, 2020, NACoal was in compliance with all financial covenants in the NACoal Facility. 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, 2020 and 2019, the balance of the note was $ 4.4 million and $ 2.0 million and the interest rate was 0.14 % and 1.68 %, respectively. NACoal has two notes payable that are secured by four specified units of equipment and bears interest at a weighted average rate of 4.20 %. One note has a ten year term and includes a principal payment of $ 4.4 million at the end of the term on December 15, 2026. The other has a seven year term and expires on April 1, 2027. At December 31, 2020 and 2019, the outstanding balances of the notes were $ 10.6 million and $ 6.3 million, respectively. F-21 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) NOTE 9— Fair Value Disclosure Recurring Fair Value Measurements : The following table presents the Company's assets accounted for at fair value on a recurring basis: Fair Value Measurements at Reporting Date Using Quoted Prices in Significant Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Description December 31, 2020 (Level 1) (Level 2) (Level 3) Assets: Equity securities $ 13,164 $ 13,164 $ — $ — $ 13,164 $ 13,164 $ — $ — Fair Value Measurements at Reporting Date Using Quoted Prices in Significant Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Description December 31, 2019 (Level 1) (Level 2) (Level 3) Assets: Equity securities $ 10,120 $ 10,120 $ — $ — $ 10,120 $ 10,120 $ — $ — Bellaire's Mine Water Treatment Trust invests in available for sale securities that are reported at fair value based upon quoted market prices in active markets for identical assets; therefore, they are classified as Level 1 within the fair value hierarchy. The Mine Water Treatment Trust realized a gain of $ 1.2 million and $ 1.5 million in the years ended December 31, 2020 and 2019, respectively. See Note 7 for further discussion of Bellaire's Mine Water Treatment Trust. During 2020, the Company invested $ 2.0 million in equity securities of a public company with a diversified portfolio of royalty producing mineral interests. The investment is reported at fair value based upon quoted market prices in active markets for identical assets; therefore, it is classified as Level 1 within the fair value hierarchy. The Company recognized a gain of $ 0.1 million during the year ended December 31, 2020, related to the investment in these equity securities. The gains related to equity securities are reported on the line Gain on equity securities in the "Other (income) expense" section of the Consolidated Statements of Operations. , There were no transfers into or out of Levels 1, 2 or 3 during the year ended December 31, 2020. Nonrecurring Fair Value Measurements: The Company regularly performs reviews of potential future development projects and identified certain undeveloped properties where market conditions related to any future development deteriorated during 2020. As a result, the Company estimated the fair value of the assets using unobservable inputs, which are classified as Level 3 inputs. The long-lived assets were written down to their estimated fair value, which resulted in a non-cash asset impairment charge of $ 7.3 million in the Minerals Management segment and $ 1.1 million in the Coal Mining segment for certain capitalized leasehold costs, prepaid royalties and other assets during 2020. The fair value of these long-lived assets was determined to be zero as such assets were deemed to have no future economic benefit based on the Company's analysis using market participant assumptions, and therefore no expected future cash flows. The impairment charges are reported on the line Asset impairment charges in the Consolidated Statements of Operations. 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 F-22 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) the book value of revolving credit agreements and long-term debt, excluding finance leases, was $ 45.2 million and $ 45.0 million, respectively, at December 31, 2020 and $ 24.3 million and $ 24.3 million, respectively, at December 31, 2019. 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. NOTE 10— Leases NACCO adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019. 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. 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. Leased assets and liabilities include the following: Description Location DECEMBER 31 2020 DECEMBER 31 2019 Assets Operating Operating lease right-of-use assets $ 10,324 $ 11,398 Finance Property, plant and equipment, net (a) 1,478 544 Liabilities Current Operating Other current liabilities $ 1,457 $ 1,318 Finance Current maturities of long-term debt 1,188 558 Noncurrent Operating Operating lease liabilities $ 11,196 $ 12,448 Finance Long-term debt 280 85 (a) Finance leased assets are recorded net of accumulated amortization of $ 0.2 million and $ 1.9 million as of December 31, 2020 and December 31, 2019, respectively. The components of lease expense for the years ended December 31 are as follows: Description Location 2020 2019 Lease expense Operating lease cost Selling, general and administrative expenses $ 2,103 $ 2,251 Finance lease cost: Amortization of leased assets Cost of sales 164 570 Interest on lease liabilities Interest expense 19 18 Variable lease expense Selling, general and administrative expenses 588 555 Short-term lease expense Selling, general and administrative expenses 260 298 Total lease expense $ 3,134 $ 3,692 F-23 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) Future minimum finance and operating lease payments were as follows at December 31, 2020: Finance Leases Operating Leases Total 2021 $ 1,229 $ 2,260 $ 3,489 2022 124 2,181 2,305 2023 102 1,705 1,807 2024 63 1,661 1,724 2025 7 1,469 1,476 Subsequent to 2025 — 7,952 7,952 Total minimum lease payments 1,525 17,228 $ 18,753 Amounts representing interest 57 4,575 Present value of net minimum lease payments $ 1,468 $ 12,653 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 for the years ended December 31 are as follows: Lease term and discount rate 2020 2019 Weighted average remaining lease term (years) Operating 8.92 9.63 Finance 1.38 0.75 Weighted average discount rate Operating 7.00 % 6.99 % Finance 4.11 % 5.95 % The following table details cash paid for amounts included in the measurement of lease liabilities for the years ended December 31: Cash paid for amounts included in the measurement of lease liabilities 2020 2019 Operating cash flows from operating leases $ 2,223 $ 2,299 Operating cash flows from finance leases 19 18 Financing cash flows from finance leases 623 534 NOTE 11— Contingencies Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss. F-24 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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, 2020 was 25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A common stock totaling 2,726,017 and 2,817,714 at December 31, 2020 and 2019, 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. As a result of the uncertainty surrounding the COVID-19 pandemic, the Company suspended repurchasing shares under the 2019 Stock Repurchase Program in March 2020. Prior to the decision to cease share repurchases, the Company repurchased 32,286 shares of Class A common stock under the 2019 Stock Repurchase Program for an aggregate purchase price of $ 1.0 million during 2020. 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 2019. 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 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: 2020 2019 Basic weighted average shares outstanding 7,026 6,974 Dilutive effect of restricted stock awards 31 33 Diluted weighted average shares outstanding 7,057 7,007 Basic earnings per share $ 2.11 $ 5.68 Diluted earnings per share $ 2.10 $ 5.66 F-25 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) NOTE 13— Income Taxes The Company provides for income taxes and the related accounts under the asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the year in which the basis differences reverse. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. 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: 2020 2019 Income (loss) before income tax provision (benefit) Domestic $ 13,990 $ 40,742 Foreign 268 2,657 $ 14,258 $ 43,399 Income tax provision (benefit) Current income tax provision (benefit): Federal $ ( 7,859 ) $ ( 6,473 ) State ( 408 ) 939 Foreign 215 603 Total current ( 8,052 ) ( 4,931 ) Deferred income tax provision: Federal 7,847 8,125 State ( 330 ) 573 Total deferred 7,517 8,698 $ ( 535 ) $ 3,767 The Company made income tax payments of $ 0.4 million and $ 1.0 million during 2020 and 2019, respectively. During the same periods, income tax refunds totaled $ 4.2 million and $ 2.6 million, respectively. F-26 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes. A reconciliation of the federal statutory and effective income tax rate for the years ended December 31 is as follows: 2020 2019 Income before income tax provision $ 14,258 $ 43,399 Statutory taxes at 21.0% $ 2,994 $ 9,114 State and local income taxes ( 626 ) 1,129 Non-deductible expenses 426 736 Percentage depletion ( 3,744 ) ( 4,451 ) R&D and other federal credits ( 367 ) ( 255 ) Settlements and uncertain tax positions 6,286 ( 2,377 ) Coronavirus Aid, Relief, and Economic Security ("CARES") Act - carryback rate differential ( 4,741 ) — Other, net ( 763 ) ( 129 ) Income tax provision $ ( 535 ) $ 3,767 Effective income tax rate ( 3.8 ) % 8.7 % The Company recorded an income tax benefit of $ 0.5 million for the year ended December 31, 2020 on income before income tax of $ 14.3 million, or ( 3.8 %), compared to income tax expense of $ 3.8 million on income before income tax of $ 43.4 million, or 8.7 %, for the year ended December 31, 2019. The year ended December 31, 2020 includes $ 7.3 million of discrete tax charges primarily related to settlement of tax examinations, reserves for uncertain tax positions and return to provision adjustments partially offset by a benefit of $ 4.7 million, primarily due to the rate differential related to carrying back losses under the provisions of the CARES Act. The CARES Act allows net operating tax losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company generated a net tax operating loss in 2020 primarily due to the realization of certain deferred tax assets. Discrete tax items in the year ended December 31, 2019 were a 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, excluding the CARES Act and discrete items, was ( 22.0 %) and 14.5 % for the years ended December 31, 2020 and 2019, respectively. The effective income tax rate differs from the U.S. federal statutory rate primarily due to the benefit from percentage depletion. The benefit of percentage depletion is not directly related to the amount of pre-tax income recorded in a period. Accordingly, as a result of the $ 29.1 million reduction in income before income tax in 2020 compared to 2019, the proportional effect of the benefit from percentage depletion on the effective income tax rate in 2020 resulted in a significantly lower effective tax rate in 2020 compared to 2019. F-27 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: December 31 2020 2019 Deferred tax assets Lease liabilities $ 27,800 $ 30,875 Tax carryforwards 17,756 16,305 Inventories 3,742 1,704 Accrued liabilities 10,160 10,020 Employee benefits 2,747 4,853 Land valuation adjustment 5,536 4,304 Other 5,401 4,701 Total deferred tax assets 73,142 72,762 Less: Valuation allowance 11,549 12,296 61,593 60,466 Deferred tax liabilities Lease right-of-use assets 27,800 30,875 Depreciation and depletion 31,972 28,061 Partnership investment - development costs 11,686 9,949 Accrued pension benefits 7,685 3,919 Total deferred tax liabilities 79,143 72,804 Net deferred liability $ ( 17,550 ) $ ( 12,338 ) The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain: December 31, 2020 Net deferred tax asset Valuation allowance Carryforwards expire during: State net operating loss $ 18,708 $ 14,478 2021-2040 Federal research credit 2,648 — 2034-2040 Total $ 21,356 $ 14,478 December 31, 2019 Net deferred tax asset Valuation allowance Carryforwards expire during: State net operating loss $ 16,531 $ 13,668 2020-2039 Federal research credit 1,455 — 2034-2038 Federal foreign tax credit 463 463 2029 Alternative minimum tax ("AMT") credit 1,596 — (1) Total $ 20,045 $ 14,131 F-28 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) (1) The Tax Cuts and Jobs Act provided that AMT credits can be utilized to offset income taxes owed in tax years 2018 through 2020 with any remaining AMT credit refundable in 2021. The CARES Act revised this to allow AMT credits to be refundable in 2018 and 2019. The Company has reclassified its AMT credits to the current receivable as of December 31, 2020. 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 has extended the statute of limitations to allow the U.S. taxing authorities to complete their examination. 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, 2020 and 2019. The increase in the gross unrecognized tax benefits in 2020 is primarily due to tax positions related to worthlessness losses for which the timing of deductibility is uncertain. Approximately $ 6.3 million and $ 2.3 million of the gross unrecognized tax benefits as of December 31, 2020 and 2019, 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 (1) the deferred tax asset which would be available if the position were not sustained upon audit and (2) the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein. 2020 2019 Balance at January 1 $ 2,860 $ 1,280 Additions based on tax positions related to prior years 2,774 1,172 Decreases based on settlements with tax authorities ( 803 ) — Additions based on tax positions related to the current year 5,628 408 Balance at December 31 $ 10,459 $ 2,860 The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recognized net benefit of less than $ 0.1 million and net expense of less than $ 0.1 million in interest and penalties related to uncertain tax positions during 2020 and 2019, respectively. The total amount of interest and penalties accrued was $ 0.1 million as of December 31, 2020 and 2019, 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 2020, 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. 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. F-29 Table of Contents 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 defined benefit plans were as follows for the years ended December 31: 2020 2019 Weighted average discount rates for pension benefit obligation 2.02 % - 2.36 % 2.98 % - 3.20 % Weighted average discount rates for net periodic benefit cost 2.98 % - 3.20 % 4.10 % - 4.20 % Expected long-term rate of return on assets for net periodic benefit cost 7.00 % 7.50 % Set forth below is a detail of the net periodic pension (income) expense for the defined benefit plans for the years ended December 31: 2020 2019 Interest cost $ 1,285 $ 1,710 Expected return on plan assets ( 2,435 ) ( 2,778 ) Amortization of actuarial loss 597 422 Amortization of prior service cost 58 58 Settlements — 873 Net periodic pension (income) expense $ ( 495 ) $ 285 Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) for the years ended December 31: 2020 2019 Current year actuarial loss (gain) $ 667 $ ( 1,030 ) Amortization of actuarial loss ( 597 ) ( 422 ) Amortization of prior service cost ( 58 ) ( 58 ) Settlements — ( 873 ) Total recognized in other comprehensive loss (income) $ 12 $ ( 2,383 ) F-30 Table of Contents 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: 2020 2019 Change in benefit obligation Projected benefit obligation at beginning of year $ 41,854 $ 42,026 Interest cost 1,285 1,710 Actuarial loss 3,996 3,121 Benefits paid ( 2,535 ) ( 2,391 ) Settlements — ( 2,612 ) Projected benefit obligation at end of year $ 44,600 $ 41,854 Accumulated benefit obligation at end of year $ 44,600 $ 41,854 Change in plan assets Fair value of plan assets at beginning of year $ 37,364 $ 34,954 Actual return on plan assets 5,763 6,930 Employer contributions 507 483 Benefits paid ( 2,535 ) ( 2,391 ) Settlements — ( 2,612 ) Fair value of plan assets at end of year $ 41,099 $ 37,364 Funded status at end of year $ ( 3,501 ) $ ( 4,490 ) Amounts recognized in the balance sheets consist of: Non-current assets $ 4,070 $ 3,079 Current liabilities ( 549 ) ( 606 ) Non-current liabilities ( 7,022 ) ( 6,963 ) $ ( 3,501 ) $ ( 4,490 ) Components of accumulated other comprehensive loss (income) consist of: Actuarial loss $ 14,022 $ 13,951 Prior service cost 761 819 Deferred taxes ( 3,316 ) ( 3,305 ) $ 11,467 $ 11,465 The Company recognizes as a component of benefit (income) cost, 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-31 Table of Contents 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: 2021 $ 2,631 2022 2,600 2023 2,676 2024 2,695 2025 2,666 2026 - 2030 12,866 $ 26,134 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: 2020 Actual Allocation 2019 Actual Allocation Target Allocation Range U.S. equity securities 45.4 % 45.1 % 36.0 % - 54.0 % Non-U.S. equity securities 20.3 % 20.0 % 16.0 % - 24.0 % Fixed income securities 33.9 % 34.4 % 30.0 % - 40.0 % Money market 0.4 % 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: Level 1 2020 2019 U.S. equity securities $ 18,640 $ 16,862 Non-U.S. equity securities 8,335 7,482 Fixed income securities 13,948 12,854 Money market 176 166 Total $ 41,099 $ 37,364 F-32 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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. The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31: 2020 2019 Weighted average discount rates for benefit obligation 1.37 % 2.65 % Weighted average discount rates for net periodic benefit cost 1.37 % - 2.65 % 3.80 % Health care cost trend rate assumed for next year 6.25 % 6.50 % Rate to which the cost trend rate is assumed to decline (ultimate trend rate) 5.0 % 5.0 % Year that the rate reaches the ultimate trend rate 2027 2025 Set forth below is a detail of the net periodic benefit (income) expense for the postretirement health care plans for the years ended December 31: 2020 2019 Service cost $ 21 $ 24 Interest cost 52 77 Amortization of actuarial (gain) loss ( 1 ) 8 Amortization of prior service credit ( 59 ) ( 80 ) Amortization of curtailment ( 31 ) — Net periodic benefit (income) expense $ ( 18 ) $ 29 Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31: 2020 2019 Current year actuarial loss $ 194 $ 46 Amortization of actuarial gain (loss) 1 ( 8 ) Amortization of prior service credit 59 80 Amortization of curtailment 31 — Transfers 46 — Total recognized in other comprehensive income $ 331 $ 118 F-33 Table of Contents 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: 2020 2019 Change in benefit obligation Benefit obligation at beginning of year $ 2,049 $ 2,113 Service cost 21 24 Interest cost 52 77 Plan amendments 49 — Actuarial loss 145 46 Benefits paid ( 262 ) ( 211 ) Benefit obligation at end of year $ 2,054 $ 2,049 Funded status at end of year $ ( 2,054 ) $ ( 2,049 ) Amounts recognized in the balance sheets consist of: Current liabilities $ ( 238 ) $ ( 204 ) Noncurrent liabilities ( 1,816 ) ( 1,845 ) $ ( 2,054 ) $ ( 2,049 ) Components of accumulated other comprehensive loss (income) consist of: Actuarial loss $ 466 $ 227 Prior service credit ( 167 ) ( 259 ) Deferred taxes ( 167 ) ( 96 ) $ 132 $ ( 128 ) Future postretirement health care benefit payments expected to be paid are: 2021 239 2022 226 2023 211 2024 196 2025 171 2026 - 2030 688 $ 1,731 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 $ 2.8 million and $ 2.7 million in 2020 and 2019, respectively. NOTE 15— Business Segments The Company’s operating segments are: (i) Coal Mining, (ii) NAMining and (iii) Minerals Management. 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. The Company has items not directly attributable to a reportable segment which are not included as part of the measurement of segment operating profit, which are primarily administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources of North America ® (“MRNA”) and Bellaire. MRNA F-34 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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. As of January 1, 2020, the Company retrospectively changed its computation of segment operating profit to reclassify certain expenses, primarily related to executive and board compensation. These expenses are now included in unallocated items. The change in segment reporting reflected a decision to evaluate the financial performance of the Company’s segments excluding executive and board compensation. All prior period segment information has been reclassified to conform to the new presentation. This segment reporting change has no impact on consolidated operating results. 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 operated and maintained 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 2020, two customers individually accounted for more than 10% of consolidated revenue. In 2019, two customers and an oil and gas lessee 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: Percentage of Consolidated Revenue Segment 2020 2019 Coal Mining customer 55 % 48 % NAMining customer 19 % 21 % Minerals Management lessee less than 10 % 12 % In addition, for the year ended December 31, 2020, the Coal Mining segment derived approximately 60 % of the Earnings of Unconsolidated Operations from two customers, Basin Electric and GRE. GRE announced its intent to close Coal Creek station in 2022. F-35 Table of Contents 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: 2020 2019 Revenues Coal Mining $ 72,088 $ 68,701 NAMining 42,392 42,823 Minerals Management 14,721 30,119 Unallocated Items 2,133 790 Eliminations ( 2,902 ) ( 1,443 ) Total $ 128,432 $ 140,990 Operating profit (loss) Coal Mining $ 25,436 $ 34,120 NAMining 1,872 ( 564 ) Minerals Management 3,493 25,721 Unallocated Items ( 17,256 ) ( 20,713 ) Eliminations ( 97 ) 256 Total $ 13,448 $ 38,820 Expenditures for property, plant and equipment and acquisition of mineral interests Coal Mining $ 14,825 $ 15,092 NAMining 13,862 8,824 Minerals Management 15,474 517 Unallocated Items 207 231 Total $ 44,368 $ 24,664 Depreciation, depletion and amortization Coal Mining $ 14,213 $ 12,409 NAMining 2,470 2,223 Minerals Management 1,308 1,362 Unallocated Items 123 246 Total $ 18,114 $ 16,240 Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance. F-36 Table of Contents 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: 2020 2019 ASSETS Cash and cash equivalents $ 85,365 $ 120,016 Accounts receivable from affiliates 495 515 Current intercompany accounts receivable, net — 1,255 Other current assets 20,648 10,448 Investment in subsidiaries 211,468 189,338 Property, plant and equipment, net 110 167 Other non-current assets 5,890 4,570 Total Assets $ 323,976 $ 326,309 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities $ 3,242 $ 5,257 Current intercompany accounts payable, net 2,337 — Current portion of deferred compensation — 13,465 Note payable to Bellaire 16,750 16,950 Other non-current liabilities 1,023 1,245 Stockholders’ equity 300,624 289,392 Total Liabilities and Stockholders’ Equity $ 323,976 $ 326,309 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, 2020 totaled approximately $ 1.7 million. The amount of unrestricted cash available to NACCO included in “Investment in subsidiaries” was $ 0.7 million at December 31, 2020. 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, within the Coal Mining and NAMining segments, 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 investment in the unconsolidated subsidiaries and related tax positions totaled $ 29.0 million and $ 24.6 million at December 31, 2020 and 2019, respectively. The Company's risk of loss relating to these entities is limited to its invested capital, which was $ 6.5 million and $ 5.0 million at December 31, 2020 and 2019, respectively. NACoal is a party to certain guarantees related to Coyote Creek. Under certain circumstances of default or termination of Coyote Creek’s Lignite Sales Agreement (“LSA”), NACoal would be obligated for payment of a "make-whole" amount to Coyote Creek’s third-party lenders. The “make-whole” amount is based on the excess, if any, of the discounted value of the remaining scheduled debt payments over the principal amount. In addition, in the event Coyote Creek’s LSA is terminated on or after January 1, 2024 by Coyote Creek’s customers, NACoal is obligated to purchase Coyote Creek’s dragline and rolling stock for the then net book value of those assets. To date, no payments have been required from NACoal since the inception of F-37 Table of Contents NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES (Tabular Amounts in Thousands, Except Per Share and Percentage Data) 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: 2020 2019 Statement of Operations Revenue $ 768,660 $ 734,515 Gross profit $ 69,021 $ 72,433 Income before income taxes $ 60,398 $ 65,183 Net income $ 50,933 $ 54,067 Balance Sheet Current assets $ 186,934 $ 183,848 Non-current assets $ 959,032 $ 837,477 Current liabilities $ 143,843 $ 141,132 Non-current liabilities $ 995,658 $ 875,216 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 $ 49.7 million and $ 53.5 million from the Unconsolidated Subsidiaries in 2020 and 2019, 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 for both of the years ended December 31, 2020 and 2019. 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 for both of the years ended December 31, 2020 and 2019. Hyster-Yale Materials Handling, Inc. ("Hyster-Yale") is a former subsidiary of the Company that was spun-off to stockholders in 2012. Mr. Rankin is Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling and Chairman, Hyster-Yale Group. 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. NOTE 19— Other Events and Transactions Voluntary Separation Program: During the fourth quarter of 2020, the Company adopted a voluntary separation program ("2020 VSP") for eligible employees who met certain age and service requirements in an effort to reduce overall headcount at the Company’s headquarters. The irrevocable acceptance period for associates electing to participate in the 2020 VSP ended during December 2020. In the fourth quarter of 2020, the Company recorded pre-tax charges for the 2020 VSP of $ 1.8 million included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations. As of December 31, 2020, $ 1.6 million was unpaid and recorded in Accrued payroll in the Consolidated Balance Sheet. F-38 Table of Contents SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY CONDENSED BALANCE SHEETS December 31 2020 2019 (In thousands) ASSETS Cash and cash equivalents $ 85,365 $ 120,016 Accounts receivable from affiliates 495 515 Current intercompany accounts receivable, net — 1,255 Other current assets 20,648 10,448 Investment in subsidiaries 211,468 189,338 Property, plant and equipment, net 110 167 Other non-current assets 5,890 4,570 Total Assets $ 323,976 $ 326,309 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities $ 3,242 $ 5,257 Current intercompany accounts payable, net 2,337 — Current portion of deferred compensation — 13,465 Note payable to Bellaire 16,750 16,950 Other non-current liabilities 1,023 1,245 Stockholders’ equity 300,624 289,392 Total Liabilities and Stockholders’ Equity $ 323,976 $ 326,309 See Notes to Parent Company Condensed Financial Statements. F-39 Table of Contents SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31 2020 2019 (In thousands) Expense (income): Intercompany interest expense $ 1,178 $ 1,190 Other, net ( 1,003 ) ( 1,796 ) 175 ( 606 ) Administrative and general expenses 5,658 6,403 Loss before income taxes ( 5,833 ) ( 5,797 ) Income tax provision (benefit) 2,419 ( 3,819 ) Net loss before equity in earnings of subsidiaries ( 8,252 ) ( 1,978 ) Equity in earnings of subsidiaries 23,045 41,610 Net income 14,793 39,632 Current period pension and postretirement plan adjustment, net of $ 213 tax benefit and $ 226 tax expense in 2020 and 2019, respectively ( 697 ) 758 Pension settlement, net of $ 202 tax benefit in 2019 — 671 Reclassification of pension and postretirement adjustments into earnings, net of $ 129 and $ 90 tax benefit in 2020 and 2019, respectively 435 845 Total other comprehensive income ( 262 ) 2,274 Comprehensive Income $ 14,531 $ 41,906 See Notes to Parent Company Condensed Financial Statements. F-40 Table of Contents SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT NACCO INDUSTRIES, INC. AND SUBSIDIARIES PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS Year Ended December 31 2020 2019 (In thousands) Operating Activities Net income $ 14,793 $ 39,632 Equity in earnings of subsidiaries 23,045 41,610 Parent company only net loss ( 8,252 ) ( 1,978 ) Net changes related to operating activities ( 22,822 ) 3,671 Net cash (used for) provided by operating activities ( 31,074 ) 1,693 Investing Activities Expenditures for property, plant and equipment — — Net cash used for investing activities — — Financing Activities Dividends received from subsidiaries 3,000 42,000 Notes payable to Bellaire ( 200 ) ( 350 ) Purchase of treasury shares ( 1,002 ) ( 3,010 ) Cash dividends paid ( 5,375 ) ( 5,132 ) Other — ( 4 ) Net cash (used for) provided by financing activities ( 3,577 ) 33,504 Cash and cash equivalents Increase (decrease) for the period ( 34,651 ) 35,197 Balance at the beginning of the period 120,016 84,819 Balance at the end of the period $ 85,365 $ 120,016 See Notes to Parent Company Condensed Financial Statements. F-41 Table of Contents 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, 2020 AND 2019 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 $ 0.7 million at December 31, 2020 and was in addition to the $ 85.4 million of cash included in the Parent Company Condensed Balance Sheet at December 31, 2020. F-42 Table of Contents SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS NACCO INDUSTRIES, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 2020 AND 2019 Additions Description 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) 2020 Reserves deducted from asset accounts: Deferred tax valuation allowances $ 12,296 $ ( 747 ) $ — — $ 11,549 2019 Reserves deducted from asset accounts: Deferred tax valuation allowances $ 14,219 $ ( 1,923 ) $ — $ — $ 12,296 (A) Balances which are not required to be presented and those which are immaterial have been omitted. F-43