What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-02 · 385 added, 604 removed, 469 unchanged (68% of the section changed)

10 unchanged sentences

Refundable federal income taxes 14,518 17,615

Prepaid insurance 11,903 2,564

Other current assets 12,312 8,308

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Accrued payroll 7,309 14,430

Deferred compensation — 13,465

Deferred revenue 1,693 1,908

Other current liabilities 8,461 8,224

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Deferred income taxes 17,973 17,550

Liability for uncertain tax positions 9,413 9,413

Other long-term liabilities 12,600 12,060

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

2020 2019 2020 2019

THREE MONTHS ENDED

(In thousands, except per share data)

8 unchanged sentences

14,704 13,504

12,567 14,962 39,207 41,894

Operating profit 8,330 7,580

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Interest income ( 120 ) ( 401 )

Income from other unconsolidated affiliates ( 18 ) ( 327 ) ( 230 ) ( 972 )

Closed mine obligations 383 434

Gain on equity securities ( 35 ) ( 108 ) ( 351 ) ( 1,067 )

(Gain) loss on equity securities ( 823 ) 1,196

Other, net ( 130 ) ( 148 )

( 334 ) 1,484

Income before income tax provision 9,879 11,621 21,559 38,722

Income tax provision 1,857 1,357 1,321 5,465

Income before income tax benefit 8,664 6,096

Income tax benefit ( 297 ) ( 70 )

Net income $ 8,961 $ 6,166

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

2020 2019 2020 2019

THREE MONTHS ENDED

(In thousands)

Net income $ 8,961 $ 6,166

Reclassification of pension and postretirement adjustments into earnings, net of $ 29 and $ 102 tax benefit in the three and nine months ended September 30, 2020, respectively, net of $ 21 and $ 66 tax benefit in the three and nine months ended September 30, 2019, respectively.

99 70 355 242

Reclassification of pension and postretirement adjustments into earnings, net of $ 43 and $ 45 tax benefit in the three months ended March 31, 2021 and March 31, 2020, respectively.

Total other comprehensive income 143 155

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED

THREE MONTHS ENDED

(In thousands)

Operating activities

Net cash provided by operating activities $ 2,760 $ 47,264

Net cash used for operating activities $ ( 910 ) $ ( 31,122 )

Investing activities

Expenditures for property, plant and equipment ( 19,802 ) ( 13,264 )

Expenditures for property, plant and equipment and acquisition of mineral interests ( 4,876 ) ( 5,358 )

Proceeds from the sale of property, plant and equipment 44 —

Purchase of equity securities ( 2,000 ) —

Other ( 15 ) 16

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Reductions of long-term debt ( 357 ) ( 593 )

Net reduction to revolving credit agreements ( 7,000 ) ( 4,000 )

Net (reductions) additions to revolving credit agreements ( 2,000 ) 4,000

Cash dividends paid ( 1,374 ) ( 1,339 )

Purchase of treasury shares — ( 1,002 )

Net cash used for financing activities ( 6,905 ) ( 8,651 )

Net cash (used for) provided by financing activities ( 3,561 ) 7,298

Cash and cash equivalents

Total (decrease) increase for the period ( 25,325 ) 29,804

Total decrease for the period ( 9,318 ) ( 29,166 )

Balance at the beginning of the period 88,450 122,892

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Stock-based compensation 88 — 377 — — 465

102 — 795 — — 897

Purchase of treasury shares ( 32 ) — ( 970 ) — — ( 1,002 )

( 36 ) — ( 1,264 ) — — ( 1,300 )

— — — 15,018 — 15,018

Cash dividends on Class A and Class B common stock:

$ 0.1650 per share

— — — ( 1,153 ) — ( 1,153 )

Reclassification adjustment to net income, net of tax

— — — — 101 101

Balance, March 31, 2019 $ 5,418 $ 1,569 $ 6,573 $ 264,217 $ ( 13,510 ) $ 264,267

Stock-based compensation

5 — 1,244 — — 1,249

Purchase of treasury shares

( 2 ) — ( 83 ) — — ( 85 )

— — — 7,975 — 7,975

Cash dividends on Class A and Class B common stock:

$ 0.1900 per share

— — — ( 1,327 ) — ( 1,327 )

Reclassification adjustment to net income, net of tax

— — — — 71 71

Balance, June 30, 2019

$ 5,421 $ 1,569 $ 7,734 $ 270,865 $ ( 13,439 ) $ 272,150

Stock-based compensation

5 — 2,119 — — 2,124

Purchase of treasury shares

( 1 ) — ( 24 ) — — ( 25 )

— — — 10,264 — 10,264

Cash dividends on Class A and Class B common stock:

$ 0.1900 per share

— — — ( 1,328 ) — ( 1,328 )

Reclassification adjustment to net income, net of tax

— — — — 70 70

Balance, September 30, 2019 $ 5,425 $ 1,569 $ 9,829 $ 279,801 $ ( 13,369 ) $ 283,255

Balance, January 1, 2020 $ 5,397 $ 1,569 $ 8,911 $ 284,852 $ ( 11,337 ) $ 289,392

Stock-based compensation 88 — 377 — — 465

Purchase of treasury shares ( 32 ) — ( 970 ) — — ( 1,002 )

Net income — — — 6,166 — 6,166

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Balance, March 31, 2020 $ 5,453 $ 1,569 $ 8,318 $ 289,679 $ ( 11,182 ) $ 293,837

Stock-based compensation

10 — 624 — — 634

— — — 6,050 — 6,050

Cash dividends on Class A and Class B common stock:

$ 0.1925 per share

— — — ( 1,351 ) — ( 1,351 )

Reclassification adjustment to net income, net of tax

— — — — 101 101

Balance, June 30, 2020 $ 5,463 $ 1,569 $ 8,942 $ 294,378 $ ( 11,081 ) $ 299,271

Balance, January 1, 2021 $ 5,490 $ 1,568 $ 10,895 $ 294,270 $ ( 11,599 ) $ 300,624

Stock-based compensation 92 — 923 — — 1,015

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Reclassification adjustment to net income, net of tax — — — — 143 143

Balance, September 30, 2020 $ 5,477 $ 1,568 $ 9,381 $ 301,045 $ ( 10,982 ) $ 306,489

Balance, March 31, 2021 $ 5,583 $ 1,567 $ 11,818 $ 301,857 $ ( 11,456 ) $ 309,369

See notes to Unaudited Condensed Consolidated Financial Statements.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

MARCH 31, 2021

(In thousands, except as noted and per share amounts)

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The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of NACCO Industries, Inc.

® (“NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc.

and Subsidiaries” or the “Company”).

Intercompany accounts and transactions are eliminated in consolidation.

NACCO is the public holding company for The North American Coal Corporation ® ("NACoal").

The Company has three operating segments:

® (“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 8 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

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Coal Mining Segment

During the nine months ended September 30, 2020, the operating coal mines were:

Bisti Fuels LLC (“Bisti”), Caddo Creek Resources Company, LLC (“Caddo Creek”), 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”).

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.

In 2019, total tons delivered by the Coal Mining segment was 34.6 million tons, of which 0.2 million tons related to Caddo Creek.

All production from the Sabine Mine is delivered to Southwestern Electric Power Company's Henry W.

Pirkey Plant.

The Pirkey power plant has been dispatched at a lower rate during the first nine months of 2020 compared with the first nine months of 2019, resulting in a 43 % reduction in tons delivered in 2020 compared with 2019.

During the third quarter of 2020, Sabine’s customer reduced its expected future annual deliveries to be between 1.4 million and 1.7 million tons of lignite coal.

Sabine historically has delivered between 2.5 million and 3.5 million tons of lignite coal annually, including 2.6 million tons in 2019 and 3.8 million tons in 2018.

The contract mining agreement between Camino Real Fuels, LLC (“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 Company received certain inventory as well as a securitized note in settlement of the outstanding receivable balance due from DRCP.

During the fourth quarter of 2020, the Company received payment for the outstanding balance on the securitized note, which was $ 2.3 million as of September 30, 2020, and is included within Other current assets on the Unaudited Condensed Consolidated Balance Sheet.

During the three months ended March 31, 2021, the Company's operating coal mines were:

Bisti Fuels Company, LLC (“Bisti”), 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").

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company.

On March 12, 2021, the Arizona Public Service Co., an owner and operator of the Four Corners Power Plant, announced plans to begin operating the plant seasonally starting in the fall of 2023, with one of the plant’s two remaining units operating year-round and the other operating only during June through October.

Under seasonal operation of the power plant, future deliveries are expected to be in the range of 3.3 million to 3.5 million tons annually, beginning in 2024 through the end of the term of the contract mining agreement in 2031.

Bisti delivered 4.2 million and 5.0 million tons in 2020 and 2019, respectively.

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.

During 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.

SWEPCO expects deliveries from Sabine to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation.

Mine reclamation is the responsibility of SWEPCO.

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.

During 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.

Deliveries to Antelope Valley Station and Leland Olds Station are expected to continue through the end of the existing coal sales agreement, which can be extended through 2037 at the option of the Company.

During 2020, Great River Energy ("GRE"), Falkirk's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

Falkirk is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract, which specifies that GRE is responsible for all costs related to mine closure, including mine reclamation.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however the terms

of the existing mining contract could change.

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.

The customers are responsible for funding all mine operating costs, including final mine reclamation, and directly or indirectly providing all of the capital required to build and operate the mine.

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.

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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 income before income taxes associated with these VIE's is reported as Earnings of unconsolidated operations on the Unaudited Condensed Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in Unconsolidated Subsidiaries in the Unaudited Condensed 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.

therefore, the income tax expense line on the Consolidated Statements of Operations includes income taxes related to these entities.

All of the Unconsolidated Subsidiaries are accounted for under the equity method.

See Note 7 for further discussion.

Camino Real and Caddo Creek previously met the definition of a variable interest entity 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 financial position was consolidated within NACCO’s financial statements beginning on June 30, 2020.

Camino Real’s results of operations for the three months ended September 30, 2020 did not materially change the Company's Unaudited Condensed Consolidated Statements of Operations.

Caddo Creek’s financial position will be consolidated within NACCO’s financial statements beginning in the fourth quarter of 2020.

The consolidation of these entities will not materially change the Company’s Unaudited Condensed Consolidated Balance Sheet.

therefore, the income tax expense line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

See Note 6 for further information on the Unconsolidated Subsidiaries.

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;

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inflation rates.

As of September 30, 2020, all of the Liberty Fuels Company, LLC mine areas have been reclaimed and final mine reclamation activities, primarily monitoring, will continue until final bond release.

Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015.

Caddo Creek Resources Company, LLC (“Caddo Creek”) ceased all mining and delivery of lignite and commenced mine reclamation in the fourth quarter of 2020.

The financial results of Caddo Creek are consolidated within NACCO's financial statements for the three months ended March 31, 2021.

Prior to entering into reclamation, Caddo Creek met the definition of a VIE;

therefore, the financial results of Caddo Creek are reported as Earnings of unconsolidated operations for the three months ended March 31, 2020.

The reclamation at Caddo Creek is expected to be substantially complete in 2022.

NAMining Segment

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The segment is a primary platform for the Company’s growth and diversification outside of the coal industry.

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.

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NAMining operates primarily at limestone quarries in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone.

During 2019, the Company entered into a mining agreement, through a new subsidiary, Sawtooth Mining, to serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

The Thacker Pass Project is 100% owned by Lithium Nevada Corp.

Sawtooth Mining will provide comprehensive mining services and certain equipment during the 20-year contract term.

During the development of the project, Sawtooth Mining will provide Lithium Nevada $ 3.5 million in cash to assist in project development, of which $ 3.0 million and $ 1.5 million has been provided as of September 30, 2020 and December 31, 2019, respectively, and included within Other non-current assets on the Unaudited Condensed Consolidated Balance Sheets.

Lithium Nevada is in the process of securing permits and currently expects to commence construction in 2021 and production of lithium products in 2023.

NAMining utilizes both fixed price and cost plus management fee contract structures.

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.

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Minerals Management Segment

The Minerals Management segment promotes the development of the Company’s gas, oil and coal reserves, generating income primarily from royalty-based lease payments from third parties.

The Company’s gas, oil and undeveloped coal reserves are located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas), Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal and coalbed methane and natural gas) and North Dakota (coal).

The majority of the Company’s existing reserves were acquired as part of its historical coal mining operations.

The Minerals Management segment derives income primarily by entering into contracts with third-party operators, granting them the rights to explore, produce and sell natural resources in exchange for royalty payments based on the lessees' sales of natural gas and, to a lesser extent, oil and coal.

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), Texas (Cotton Valley and Austin Chalk 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, oil and natural gas).

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.

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GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at September 30, 2020, the results of its operations, comprehensive income, cash flows and changes in equity for the nine months ended September 30, 2020 and 2019 have been included.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at March 31, 2021, the results of its operations, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2021 and 2020 have been included.

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

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NOTE 2— 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.

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Fluctuations in revenue from period to period generally result from changes in customer demand.

At NAMining entities, the management service to oversee the operation of the equipment and delivery of limestone is the performance obligation accounted for as a series.

During 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, the management service to oversee the operation of the equipment and delivery of aggregates or other minerals is the performance obligation accounted for as a series.

Performance momentarily creates an asset that the customer simultaneously receives and consumes;

therefore, control is transferred to the customer over time.

Consistent with the conclusion that the customer simultaneously receives and consumes the benefits provided, an input-based measure of progress is appropriate.

As each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee and the general and administrative fee (as applicable).

Fluctuations in revenue from period to period result from changes in customer demand and variances in reimbursable costs primarily due to increases and decreases in activity levels on individual contracts.

The Company enters into royalty contracts which grant the right to explore, develop, produce and sell minerals controlled by the Company.

Fluctuations in revenue from period to period result from changes in customer demand primarily due to increases and decreases in activity levels on individual contracts and variances in reimbursable costs.

The Minerals Management segment enters into 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;

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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.

Under these 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.

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As the amount of consideration the Company will ultimately be entitled to is entirely susceptible to factors outside its control, the entire amount of variable consideration is constrained at contract inception.

The fixed portion of the transaction price will be recognized over the primary term of the contract, which is generally five years .

The Company believes that the pricing provisions of royalty contracts are customary in the industry.

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 yards, however, the terms of these variable payments relate specifically to the Company's 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.

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 the Company's 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.

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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.

Cost Reimbursement

Certain contracts include reimbursement from customers of actual costs incurred for the purchase of supplies, equipment and services in accordance with contractual terms.

Such reimbursable revenue is variable and subject to uncertainty, as the amounts received and timing thereof is highly dependent on factors outside of the Company’s control.

Accordingly, reimbursable revenue is fully constrained and not recognized until the uncertainty is resolved, which typically occurs when the related costs are incurred on behalf of a customer.

The Company is generally considered a principal in such transactions and records the associated revenue at the gross amount billed to the customer with the related costs recorded as an expense within cost of sales.

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 Unaudited Condensed 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 three months ended March 31, 2021 and 2020, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial.

Disaggregation of Revenue

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See Note 8 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

The following table disaggregates revenue by major sources:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

Major Goods/Service Lines 2020 2019 2020 2019

Coal Mining $ 20,395 $ 18,799 $ 62,896 $ 58,119

NAMining 9,443 8,993 33,115 30,496

Minerals Management 2,722 5,022 9,950 25,950

Unallocated Items 904 52 1,257 726

Eliminations ( 1,169 ) ( 263 ) ( 1,924 ) ( 1,239 )

Total revenues $ 32,295 $ 32,603 $ 105,294 $ 114,052

THREE MONTHS ENDED

Timing of Revenue Recognition

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Contract Balances

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

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

Contract balances

Trade accounts receivable, net Contract liability (current) Contract liability (long-term)

Trade accounts receivable, net Contract asset

(current) Contract asset

(long-term) Contract liability (current) Contract liability (long-term)

Balance, January 1, 2021 $ 18,894 $ — $ 4,984 $ 941 $ 3,626

Balance, September 30, 2020 16,507 941 1,448

Balance, March 31, 2021 22,301 3,503 5,078 913 4,267

Increase (decrease) $ 3,407 $ 3,503 $ 94 $ ( 28 ) $ 641

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The difference between the opening and closing balance of this contract liability, which is shown above, primarily results from the difference between new lease bonus payments received and amortization of up-front lease bonus payments received in previous periods.

The amount of revenue recognized in the three months ended September 30, 2020 and September 30, 2019 that was included in the opening contract liability was $ 0.2 million and $ 0.1 million, respectively.

The amount of revenue recognized in the nine months ended September 30, 2020 and September 30, 2019 that was included in the opening contract liability was $ 0.7 million and $ 0.5 million, respectively.

The amount of revenue recognized in both of the three months ended March 31, 2021 and March 30, 2020 that was included in the opening contract liability was $ 0.2 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 an additional $ 0.2 million in the remainder of 2020, $ 0.9 million in 2021, $ 0.7 million in 2022, $ 0.3 million in 2023, and $ 0.1 million in 2024 related to the contract liability remaining at September 30, 2020.

The difference between the opening and closing balances of the Company’s accounts receivable and contract liabilities results from the timing difference between the Company’s performance and the customer’s payment.

Contracts with payments in arrears are recognized as receivables.

The Company expects to recognize an additional $ 0.7 million in the remainder of 2021, $ 4.0 million in 2022, $ 0.3 million in 2023, and $ 0.1 million in 2024 related to the contract liability remaining at March 31, 2021.

The difference between the opening and closing balances of the Company’s accounts receivable, contract assets and contract liabilities 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.

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Total inventories $ 45,102 $ 47,551

NOTE 4— Leases

NACCO adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019.

The most significant effect to the Unaudited Condensed Consolidated Balance Sheets relates to the recognition of new right-of-use 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 balances included in the Unaudited Condensed Consolidated Balance Sheets.

Several leases include renewal or fair value purchase options, which are not recognized on the Unaudited Condensed Consolidated Balance Sheets.

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 SEPTEMBER 30

2020 DECEMBER 31

Operating Operating lease right-of-use assets $ 10,448 $ 11,398

Finance Property, plant and equipment, net (a) $ 144 $ 544

Operating Other current liabilities $ 1,296 $ 1,318

Finance Current maturities of long-term debt $ 44 $ 558

Operating Operating lease liabilities $ 11,494 $ 12,448

Finance Long-term debt $ 103 $ 85

(a) Finance leased assets are recorded net of accumulated amortization of less than $ 0.1 million and $ 1.9 million as of September 30, 2020 and December 31, 2019, respectively.

The components of lease expense were as follows:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

Description Location 2020 2019 2020 2019

Lease expense

Operating lease cost Selling, general and administrative expenses $ 499 $ 569 $ 1,513 $ 1,783

Finance lease cost:

Amortization of leased assets Cost of sales 10 104 113 300

Interest on lease liabilities Interest expense

Variable lease expense Selling, general and administrative expenses 157 141 444 416

Short-term lease expense Selling, general and administrative expenses 89 79 248 242

Total lease expense $ 757 $ 897 $ 2,326 $ 2,751

Future minimum finance and operating lease payments were as follows at September 30, 2020:

Leases Operating

Remainder of 2020 $ 13 $ 532 $ 545

2021 49 2,113 2,162

2022 49 2,162 2,211

2023 28 1,685 1,713

2024 12 1,660 1,672

Subsequent to 2024 7 9,421 9,428

Total minimum lease payments $ 158 $ 17,573 $ 17,731

Amounts representing interest 11 4,783

Present value of net minimum lease payments $ 147 $ 12,790

As most of the Company's leases do not provide an implicit rate, the Company determines the incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company considers its credit rating and the current economic environment in determining this collateralized rate.

The assumptions used in accounting for ASC 842 were as follows:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

Lease term and discount rate 2020 2019 2020 2019

Weighted average remaining lease term (years)

Operating 9.19 9.76 9.19 9.76

Finance 3.47 1.95 3.47 1.95

Weighted average discount rate

Operating 7.01 % 6.99 % 7.01 % 6.99 %

Finance 3.96 % 5.36 % 3.96 % 5.36 %

The following table details cash paid for amounts included in the measurement of lease liabilities:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

Cash paid for amounts included in the measurement of lease liabilities 2020 2019 2020 2019

Operating cash flows from operating leases $ 532 $ 608 $ 1,646 $ 1,768

Operating cash flows from finance leases $ 2 $ 4 $ 8 $ 10

Financing cash flows from finance leases $ 9 $ 115 $ 551 $ 347

NOTE 4— Stockholders' Equity

Stock Repurchase Program:

On November 6, 2019, the Company's Board of Directors approved a stock purchase program ("2019 Stock Repurchase Program") providing for the purchase of up to $ 25 million of the Company's outstanding Class A Common Stock through December 31, 2021.

NACCO's previous repurchase program ("2018 Stock Repurchase Program") would have expired on December 31, 2019 but was terminated and replaced by the 2019 Stock Repurchase Program.

During 2019, the Company'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.

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 the nine months ended September 30, 2020.

During the three and nine months ended September 30, 2019, the Company repurchased 525 and 39,049 shares, respectively, of Class A Common Stock under the 2018 Stock Repurchase Program for an aggregate purchase price of less than $ 0.1 million and $ 1.4 million, respectively.

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.

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Description Date (Level 1) (Level 2) (Level 3)

September 30, 2020

March 31, 2021

Equity securities $ 14,005 $ 14,005 $ — $ —

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therefore, they are classified as Level 1 within the fair value hierarchy.

The Company recognized a gain of $ 0.5 million and $ 0.4 million in the three and nine months ended September 30, 2020, respectively, and a gain of $ 0.1 million and $ 1.1 million in the three and nine months ended September 30, 2019, respectively, related to the Mine Water Treatment Trust.

The Company recognized a gain of $ 0.3 million and a loss of $ 1.2 million during the three months ended March 31, 2021 and 2020, respectively, related to the Mine Water Treatment Trust.

During the second quarter of 2020, the Company invested $ 2.0 million in equity securities of a public company with a diversified portfolio of royalty producing mineral interests.

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therefore, it is classified as Level 1 within the fair value hierarchy.

The Company recognized a loss of $ 0.5 million and $ 0.1 million in the three and nine months ended September 30, 2020, respectively, related to the investment in these equity securities.

The gains and losses related to equity securities are reported on the line Gain on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

There were no transfers into or out of Levels 1, 2 or 3 during the three and nine months ended September 30, 2020 and 2019.

The Company recognized a gain of $ 0.5 million during the three months ended March 31, 2021, related to the investment in these equity securities.

The gains and losses related to equity securities are reported on the line (Gain) loss on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

There were no transfers into or out of Levels 1, 2 or 3 during the three months ended March 31, 2021 and 2020.

NOTE 6— Unconsolidated Subsidiaries

Each of NACoal'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 other than at Coyote Creek, without recourse to NACCO and NACoal.

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.

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See Note 1 for a discussion of these entities.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 25.5 million and $ 24.6 million at September 30, 2020 and December 31, 2019, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 4.4 million and $ 5.0 million at September 30, 2020 and December 31, 2019, respectively.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 29.8 million and $ 29.0 million at March 31, 2021 and December 31, 2020, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 5.9 million and $ 6.5 million at March 31, 2021 and December 31, 2020, respectively.

Earnings of unconsolidated operations were $ 15.3 million and $ 16.0 million during the three months ended March 31, 2021 and 2020, respectively.

NACoal is a party to certain guarantees related to Coyote Creek.

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The Company believes that the likelihood NACoal would be required to perform under the guarantees is remote, and no amounts related to these guarantees have been recorded.

Summarized financial information for the Unconsolidated Subsidiaries is as follows:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

2020 2019 2020 2019

Gross profit $ 18,046 $ 20,059 $ 49,792 $ 53,826

Income before income taxes $ 15,629 $ 17,827 $ 45,673 $ 49,080

NOTE 7— Contingencies

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(i) Coal Mining, (ii) NAMining and (iii) Minerals Management.

While the Company continues to pursue opportunities to add new coal mining operations to the Coal Mining segment, the NAMining segment serves as the platform for pursuing non-coal mining projects and the Minerals Management segment promotes the development of the Company's gas, oil and coal reserves.

The Company determines its reportable segments by first identifying its operating segments, and then by assessing whether any components of these segments constitute a business for which discrete financial information is available and where segment management regularly reviews the operating results of that component.

The Company’s Chief Operating Decision Maker utilizes operating profit to evaluate segment performance and allocate resources.

The Company also has unallocated items not directly attributable to a reportable segment which are not included as part of the measurement of segment operating profit, primarily administrative costs related to public company reporting requirements, the financial results of the Company’s mitigation banking business, Mitigation Resources of North America ® (“MRNA”), and Bellaire.

MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation.

Mitigation Resources generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation.

Bellaire manages the Company’s long-term liabilities related to former Eastern U.S.

underground mining activities.

Transactions between segments are accounted for as third-party arrangements for purposes of presenting segment results of operations and are eliminated in consolidation.

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-Q on a consolidated basis.

Included within other income on the line Income from other unconsolidated affiliates within the Unaudited Condensed Consolidated Statements of Operations is the financial results of NoDak Energy Services, LLC ("NoDak").

NoDak 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.

The following tables present revenue, operating profit, depreciation expense and capital expenditures:

THREE MONTHS ENDED NINE MONTHS ENDED

SEPTEMBER 30 SEPTEMBER 30

2020 2019 2020 2019

THREE MONTHS ENDED

Coal Mining $ 23,739 $ 20,928

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Total $ 8,330 $ 7,580

Expenditures for property, plant and equipment

Expenditures for property, plant and equipment and acquisition of mineral interests

Coal Mining $ 1,617 $ 823

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Total $ 5,585 $ 4,544

NOTE 10— Income Taxes

The Company evaluates and updates its estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws.

Consequently, based upon the mix and timing of actual earnings compared to projections of earnings between entities that benefit from percentage depletion and those that do not, the effective tax rate may vary quarterly.

The quarterly income tax provision is generally comprised of tax expense on income or a benefit on a loss at the most recent estimated annual effective income tax rate, adjusted for the effect of discrete items.

The Company recorded income tax expense of $ 1.9 million for the three months ended September 30, 2020, or 18.8 %, on income before income tax of $ 9.9 million, compared to income tax expense of $ 1.4 million, or 11.7 %, on income before income tax of $ 11.6 million for the three months ended September 30, 2019.

The three months ended September 30, 2020 include $ 4.2 million of discrete tax charges primarily related to settlement of tax examinations and changes in uncertain tax positions partially offset by a discrete tax benefit of $ 2.2 million, primarily due to return to provision adjustments.

Discrete tax items in the three months ended September 30, 2019 were not material.

The Company recorded income tax expense of $ 1.3 million for the nine months ended September 30, 2020, or 6.1 %, on income before income tax of $ 21.6 million, compared to income tax expense of $ 5.5 million, or 14.1 %, on income before income tax of $ 38.7 million for the nine months ended September 30, 2019.

The nine months ended September 30, 2020 include $ 4.2 million of discrete tax charges primarily related to settlement of tax examinations and changes in uncertain tax positions partially offset by a benefit of $ 1.8 million, primarily due to return to provision adjustments.

Discrete tax items in the nine months ended September 30, 2019 were not material.

The return to provision adjustments recognized in 2020 include the utilization of the net operating loss carry back provisions allowed under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") enacted in response to the COVID-19 pandemic.

The CARES Act contains numerous income tax provisions, including among other items, temporary changes regarding the utilization of net operating losses.

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’s estimated annual effective income tax rate, excluding discrete items, was ( 5.2 %) and 14.0 % for the nine months ended September 30, 2020 and 2019, respectively.

The estimated annual effective income tax rate differs from the U.S.

federal statutory rate due to the benefit from percentage depletion and in 2020 includes the benefit of utilizing the forecasted current year net operating tax loss that would otherwise be deductible at the current 21% statutory rate to offset taxable income in years that were taxed at a 35% rate.

The Company expects to generate a net operating tax loss in 2020 primarily due to the realization of certain deferred tax assets.

NOTE 11— 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 or the asset is sold, 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.

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, 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 Unaudited Condensed Consolidated Statements of Operations.

The associated asset is recorded in “Property, Plant and Equipment, net” in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The depreciation of the asset is recorded in the line “Cost of sales” in the accompanying Unaudited Condensed Consolidated Statements of Operations.

A reconciliation of the Company's beginning and ending aggregate carrying amount of the asset retirement obligations is as follows:

Coal Mining NAMining Unallocated Items NACCO

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 ( 5,957 ) — ( 562 ) ( 6,519 )

Accretion expense 1,296 28 1,023 2,347

Revision of estimated cash flows 600 — — 600

Balance at September 30, 2020 $ 24,763 $ 632 $ 17,701 $ 43,096

Asset retirement obligations are incurred at the time development of a new mine or mine area commences.

During the third quarter of 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.

During the third quarter of 2020, the Company transferred the mine permits for certain Centennial mines to an unrelated third party.

As of September 30, 2020, the Company has $ 10.7 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 $ 4.9 million of the Company's outstanding surety bonds during the fourth quarter of 2020 and transfer or replace the remaining $ 5.8 million of outstanding surety bonds as soon thereafter 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.

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.

In addition, as part of the transfer of the mine permits, the Company paid $ 1.9 million of cash, recorded $ 1.4 million in Other current assets for amounts owed to Centennial from the third-party acquirer, and recognized $ 1.9 million in Accounts payable and $ 2.4 million in Other long-term liabilities in the Unaudited Condensed Consolidated Balance Sheets.

The liabilities are associated with amounts due to the third-party acquirer upon transfer or replacement of the surety bonds and a liability for the guarantee to stand ready to perform in the event there is a claim under the surety bonds.

No payments have been required since the inception of these guarantees.

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 Unaudited Condensed 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 Unaudited Condensed Consolidated Balance Sheets, are $ 10.3 million and $ 10.1 million at September 30, 2020 and December 31, 2019, respectively, and are legally restricted for purposes of settling the Bellaire asset retirement obligation.

See Note 6 for further discussion of the Mine Water Treatment Trust.

- Management's Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in thousands, except as noted and per share data)

(Amounts in thousands, except as noted and per share data)

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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® (“NACCO”) and its wholly owned subsidiaries (collectively, the “Company”).

NACCO is the public holding company for The North American Coal Corporation ® .

The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) operate in the mining and natural resources industries through three operating segments:

NACCO, through a portfolio of mining and natural resources businesses, operates under three business segments:

Coal Mining, North American Mining ("NAMining") and Minerals Management.

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The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The Minerals Management segment promotes the development of the Company’s gas, oil and coal reserves, generating income primarily from royalty-based lease payments from third parties.

MRNA generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation.

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 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 ® (“Mitigation Resources”) and Bellaire Corporation ("Bellaire.") Mitigation Resources 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-Q on a consolidated basis.

The Company has continued to operate as an essential business during the COVID-19 pandemic because it supports critical infrastructure industries.

The Company has procedures to limit the exposure of employees to the spread of COVID-19.

The extent to which COVID-19 impacts the Company going forward will depend on numerous factors and future developments that remain uncertain.

The Company’s operating segments are further described below:

Coal Mining Segment

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 Coal Mining segment, operating as North American Coal Corporation ® ("NACoal"), operates surface coal mines under

long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business

Coal is surface-mined in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico.

Each mine is fully integrated with its customer operations.

During the nine months ended September 30, 2020, the operating coal mines were:

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.

In 2019, total tons delivered by the Coal Mining segment was 34.6 million tons, of which 0.2 million tons related to Caddo Creek.

All production from the Sabine Mine is delivered to Southwestern Electric Power Company's Henry W.

Pirkey Plant.

The Pirkey power plant has been dispatched at a lower rate during the first nine months of 2020 compared with the first nine months of 2019, resulting in a 43% reduction in tons delivered in 2020 compared with 2019.

During the third quarter of 2020, Sabine’s customer reduced its expected future annual deliveries to be between 1.4 million and 1.7 million tons of lignite coal.

Sabine historically has delivered between 2.5 million and 3.5 million tons of lignite coal annually, including 2.6 million tons in 2019 and 3.8 million tons in 2018.

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.

On May 7, 2020, Great River Energy ("GRE"), Falkirk Mine's customer, and the Company's second largest 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.

NACCO is actively engaged in the exploration of options that could, if successful, allow for transfer of ownership of the power plant to one or more third parties, which would preserve jobs at both Coal Creek Station and the Falkirk Mine.

The Company believes Coal Creek Station is an efficient, economic and attractive generation and capacity asset, and its continued long-term operation is in the best interests of the employees and the local community.

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 has approximately 480 employees, and, in 2019, delivered a total of 7.4 million tons of lignite coal and contributed approximately $16 million to NACCO’s Earnings from Unconsolidated Operations.

The closure of Coal Creek Station would have a material adverse effect on the long-term earnings of NACCO.

The terms of the contract between the Company and GRE specify that GRE is responsible for all costs related to mine closure, including but not limited to, final mine reclamation costs, post-retirement medical benefits and pension costs with respect to Falkirk employees.

mine is fully integrated with its customer's operations.

During the three months ended March 31, 2021, the Company's operating coal mines were:

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company.

Bisti delivered 4.2 million and 5.0 million tons in 2020 and 2019, respectively.

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.

During 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.

SWEPCO expects deliveries from Sabine to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation.

Mine reclamation is the responsibility of SWEPCO.

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.

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.

During 2020, Great River Energy ("GRE"), Falkirk's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however the terms of the existing mining contract could change.

Coteau, Coyote, Falkirk, MLMC and Sabine supply lignite coal for power generation.

Bisti supplies sub-bituminous coal for power generation.

Bisti supplies sub-bituminous coal for

power generation.

Demery supplies lignite coal for the production of activated carbon.

Each of these mines deliver their coal production to adjacent or nearby power plants, synfuels plants or an activated carbon processing facility under long-term supply contracts.

Each operating mine is the exclusive supplier of coal to its customers' facilities.

Each of these mines deliver their coal

production to adjacent or nearby power plants, synfuels plants or an activated carbon processing facility under long-term supply

Each mine is the exclusive supplier of coal to its customers' facilities.

MLMC’s coal supply contract contains a take

or pay provision;

all other coal supply contracts are requirements contracts under which earnings can fluctuate.

certain coal supply contracts can be terminated early, which would result in a reduction to future earnings.

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.

The customers are responsible for funding all mine operating costs, including final mine reclamation, and directly or indirectly providing all of the capital required to build and operate the mine.

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.

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Instead, these contracts are accounted for as equity method investments.

therefore, the income tax expense line on the Consolidated Statements of Operations includes income taxes related to these entities.

All of the Unconsolidated Subsidiaries are accounted for under the equity method.

See Note 7 for further discussion.

As a result of the events described above, Camino Real and Caddo Creek are no longer VIEs.

Camino Real’s financial position was consolidated within NACCO’s financial statements beginning on June 30, 2020.

Camino Real’s results of operations for the three months ended September 30, 2020 did not materially change the Company's Unaudited Condensed Consolidated Statements of Operations.

Caddo Creek’s financial position will be consolidated within NACCO’s financial statements

beginning in the fourth quarter of 2020.

The consolidation of these entities will not materially change the Company’s Unaudited Condensed 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, the income tax expense line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

See Note 6 for further information on the Unconsolidated Subsidiaries.

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.

coal to its customer at a contractually agreed-upon price which adjusts monthly, primarily based on changes in the level of

established indices which reflect general U.S.

inflation rates.

Profitability at MLMC is affected by customer demand for coal, changes in the indices that determine sales price and actual costs incurred.

As diesel fuel is heavily weighted among the indices used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.

Profitability at MLMC is affected by customer demand for coal

and changes in the indices that determine sales price and actual costs incurred.

As diesel fuel is heavily weighted among the

indices used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.

MLMC delivers coal to the Red Hills Power Plant in Ackerman, Mississippi.

The Red Hills Power Plant supplies electricity to the Tennessee Valley Authority ("TVA") under a long-term Power Purchase Agreement.

MLMC’s contract with its customer runs through 2032.

The Red Hills Power Plant supplies electricity to

the Tennessee Valley Authority ("TVA") under a long-term Power Purchase Agreement.

MLMC’s contract with its

customer runs through 2032.

TVA’s power portfolio includes coal, nuclear, hydroelectric, natural gas and renewables.

The decision of which power plants to dispatch is determined by TVA.

As of September 30, 2020, all of the Liberty Fuels Company, LLC mine areas have been reclaimed and final mine reclamation activities, primarily monitoring, will continue until final bond release.

Centennial Natural Resources (“Centennial”), located in Alabama, ceased coal production at the end of 2015.

The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial are owned or controlled by the Company.

decision of which power plants to dispatch is determined by TVA.

The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial Natural Resources ("Centennial") are owned or controlled

by the Company.

The coal reserves at all other mines are owned or controlled by the respective mine’s customer.

The Company performs contemporaneous reclamation activities at each mine in the normal course of operations.

Under all of the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities.

Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities.

To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those services in addition to receiving reimbursement from customers for costs incurred.

The contracts under which certain of the Unconsolidated Subsidiaries operate provide that, under certain conditions, including default, the customer(s) involved may elect or be obligated to acquire the assets (subject to the liabilities) or the capital stock of the Coal Mining subsidiary for an amount effectively equal to book value.

The Company does not know of any conditions of default that currently exist.

the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities.

Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation

To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those

services in addition to receiving reimbursement from customers for costs incurred.

Caddo Creek Resources Company, LLC (“Caddo Creek”) ceased all mining and delivery of lignite and commenced mine reclamation during 2020.

The reclamation at Caddo Creek is expected to be substantially complete in 2022.

The terms of the contract to perform mine reclamation contain a fixed-price component and therefore, Caddo Creek no longer meets the VIE criteria.

As a result, Caddo Creek is consolidated within the Company's financial statements.

NAMining Segment

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The segment is a primary platform for the Company’s growth and diversification outside of the coal industry.

NAMining provides contract mining services for independently owned mines and quarries, creating value for its customers by performing the mining aspects of its customers’ operations.

This allows customers to focus on their areas of expertise:

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other

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

materials handling and processing, product sales and distribution.

NAMining operates primarily at limestone quarries in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone.

During 2019, the Company entered into a mining agreement, through a new subsidiary, Sawtooth Mining, to serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

The Thacker Pass Project is 100% owned by Lithium Nevada Corp.

Sawtooth Mining will provide comprehensive mining services and certain equipment during the 20-year contract term.

Lithium Nevada is in the process of securing permits and currently expects to commence construction in 2021 and production of lithium products in 2023.

NAMining utilizes both fixed price and cost plus 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.

NAMining operates primarily at limestone quarries

in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone.

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 6 for further discussion.

Minerals Management Segment

The Minerals Management segment promotes the development of the Company’s gas, oil and coal reserves, generating income primarily from royalty-based lease payments from third parties.

The Company’s gas, oil and undeveloped coal reserves are located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas), Texas (Permian basin oil and natural gas), Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal and coalbed methane and natural gas) and North Dakota (coal).

The majority of the Company’s existing reserves were acquired as part of its historical coal mining operations.

Specialized employees in the Minerals Management segment also provide surface and mineral acquisition and lease maintenance services related to Company operations.

The acquisition criteria includes building a blended portfolio of mineral and royalty interests (i) with new wells anticipated to come online within one to two years of investment, (ii) in areas with forecasted future development within five years after acquisition, or (iii) with existing producing wells further along the decline curve that will generate stable cash flow.

In addition, acquisitions should extend the geographic footprint to diversify across multiple basins with a preliminary focus on the more oil-rich Permian and Williston basins and a secondary focus on other diversifying basins to increase regional exposure.

While the current focus is on the acquisition of mineral and royalty interests, the Company would also consider investments in overriding royalty interests, non-participating royalty interests or non-operated working interests under certain circumstances.

The current acquisition strategy does not contemplate any near-term working interest investments in which the Company would act as the operator.

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), Texas (Cotton Valley and Austin Chalk formation natural gas), Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal, coalbed methane and natural gas) and North Dakota (coal, oil and natural gas).

The majority of the Company’s legacy reserves were acquired as part of its historical coal mining operations.

The Minerals Management segment owns royalty interests, mineral interests, nonparticipating royalty interests, and overriding royalty interests ("ORRI").

The Company may own more than one type of mineral and royalty interest in the same tract of land.

For example, where the Company owns an ORRI in a lease on the same tract of land in which it owns a mineral interest, the ORRI in that tract will relate to the same gross acres as the mineral interest in that tract.

The Minerals Management segment will benefit from the continued development of its mineral properties without the need for investment of additional capital once mineral and royalty interests have been acquired.

The Minerals Management segment does not have any investments under which it would be required to bear the cost of exploration, production or development.

As an owner of royalty and mineral interests, the Company’s access to information concerning activity and operations of its royalty and mineral interests is limited.

The Company does not have information that would be available to a company with oil and natural gas operations because detailed information is not generally available to owners of royalty and mineral interests.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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CONSOLIDATED FINANCIAL SUMMARY

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

The results of operations for NACCO were as follows for the three months ended March 31:

Coal Mining $ 23,739 $ 20,928

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Interest income (120) (401)

Income from other unconsolidated affiliates (18) (327) (230) (972)

Closed mine obligations 383 434

Gain on equity securities (35) (108) (351) (1,067)

(Gain) loss on equity securities (823) 1,196

Other, net (130) (148)

Other (income) expense, net (334) 1,484

Income before income tax provision 9,879 11,621 21,559 38,722

Income tax provision 1,857 1,357 1,321 5,465

Income before income tax benefit 8,664 6,096

Income tax benefit (297) (70)

Net income $ 8,961 $ 6,166

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

Third Quarter of 2020 Compared with Third Quarter of 2019 and First Nine Months of 2020 Compared with First Nine Months of 2019

First Quarter of 2021 Compared with First Quarter of 2020

Other (income) expense, net

North American Coal Corporation India Private Limited ("NACC India") was formed to provide technical business advisory services to the third-party owner of a coal mine in India.

During 2014, NACC India's customer defaulted on its contractual payment obligations and as a result of this default, NACC India terminated its contract with the customer and began pursuing contractual remedies.

During the third quarter of 2019, the Company received payment of $2.7 million from NACC India's customer, of which $1.4 million related to past invoices and has been reported on the line Other, net, and $1.3 million represented interest income and has been reported on the line Interest income.

During the third quarter of 2020, the Company received an additional payment of $1.0 million from NACC India's customer which has been reported on the line, Other, net.

Both of these lines are in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

The Company does not expect to receive any additional payments from NACC India’s customer.

Interest expense increased in the third quarter and the first nine months of 2020 compared with the 2019 periods by $0.1 million and $0.4 million, respectively, due to higher average borrowings.

Interest income decreased in the third quarter and the first nine months of 2020 compared with the 2019 periods by $1.8 million and $2.4 million, respectively, primarily due to the interest income related to the NACC India customer payment the Company received in 2019 and lower interest rates despite a higher average invested cash balance.

Income from other unconsolidated affiliates represents the financial results of NoDak.

NoDak operated and maintained a coal drying system at a customer’s power plant.

The NoDak contract expired on January 31, 2020, resulting in decreases of $0.3 million and $0.7 million, respectively, in Income from other unconsolidated affiliates during the third quarter and the first nine months of 2020 compared with the 2019 periods.

Income from NoDak was $1.3 million for the year ended December 31, 2019.

Gain on equity securities represents changes in the market price of invested assets reported at fair value.

The change in the gains during the third quarter and the first nine months of 2020 compared with the gains during the 2019 periods was due to lower returns on invested assets.

Interest income decreased by $0.3 million in the first three months of 2021 compared with the 2020 period primarily due to lower interest rates and a lower average invested cash balance.

(Gain) loss on equity securities represents changes in the market price of invested assets reported at fair value.

The change resulted from an increase in the market value of equity securities in the first three months of 2021 compared with a decrease in the first three months of 2020.

See Note 5 to the Unaudited Condensed Consolidated Financial Statements for further discussion of equity securities.

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The Company recorded income tax expense of $1.9 million for the three months ended September 30, 2020, or 18.8%, on income before income tax of $9.9 million, compared to income tax expense of $1.4 million, or 11.7%, on income before income tax of $11.6 million for the three months ended September 30, 2019.

The three months ended September 30, 2020 include $4.2 million of discrete tax charges primarily related to settlement of tax examinations and changes in uncertain tax positions partially offset by a discrete tax benefit of $2.2 million, primarily due to return to provision adjustments.

Discrete tax items in the three months ended September 30, 2019 were not material.

The Company recorded income tax expense of $1.3 million for the nine months ended September 30, 2020, or 6.1%, on income before income tax of $21.6 million, compared to income tax expense of $5.5 million, or 14.1%, on income before income tax of $38.7 million for the nine months ended September 30, 2019.

The nine months ended September 30, 2020 include $4.2 million of discrete tax charges primarily related to settlement of tax examinations and changes in uncertain tax positions partially offset by a benefit of $1.8 million, primarily due to return to provision adjustments.

Discrete tax items in the nine months ended September 30, 2019 were not material.

The CARES Act contains numerous income tax provisions, including among other items, temporary changes

regarding the utilization of net operating losses.

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’s estimated annual effective income tax rate, excluding discrete items, was (5.2%) and 14.0% for the nine months ended September 30, 2020 and 2019, respectively.

The estimated annual effective income tax rate differs from the U.S.

The Company expects to generate a net operating tax loss in 2020 primarily due to the realization of certain deferred tax assets.

federal statutory rate due to the benefit from percentage depletion.

LIQUIDITY AND CAPITAL RESOURCES OF NACCO

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

The following tables detail NACCO's changes in cash flow for the three months ended March 31:

2021 2020 Change

Operating activities:

Net cash provided by operating activities $ 2,760 $ 47,264 $ (44,504)

Net cash used for operating activities $ (910) $ (31,122) $ 30,212

Investing activities:

Expenditures for property, plant and equipment (19,802) (13,264) (6,538)

Expenditures for property, plant and equipment and acquisition of mineral interests (4,876) (5,358) 482

Other 29 16 13

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Cash flow before financing activities $ (5,757) $ (36,464) $ 30,707

The $44.5 million decrease in net cash provided by operating activities was primarily due to working capital changes, including:

• Increased payments made under deferred compensation and long-term incentive compensation plans during the first nine months of 2020 compared with the first nine months of 2019.

• An increase in Refundable income taxes related to the carry back of net operating tax loss claims under the CARES Act during the first nine months of 2020.

• A smaller decrease in Accounts receivables during the first nine months of 2020 compared to the decrease during the first nine months of 2019.

The large decrease in the first nine months of 2019 was primarily due to the timing of sales at MLMC.

• An increase in Other current assets due to the recognition of a $2.3 million note receivable in settlement of DRCP's outstanding receivable balance associated with the closure of Camino Real's Eagle Pass Mine during 2020 and a change in prepaid expenses.

The change in net cash used for investing activities was primarily attributable to an increase in expenditures for property, plant and equipment at the NAMining and Coal Mining segments.

The $30.2 million change in net cash used for operating activities was primarily due to a net favorable change in working capital, including:

• Decreased payments made under deferred compensation and long-term incentive compensation plans in the first quarter of 2021 compared with the first quarter of 2020, and

• A reduction in refundable federal income taxes in the first quarter of 2021 compared with an increase in the first quarter of 2020.

These favorable changes were partially offset by an increase in prepaid insurance during the first quarter of 2021 compared with the first quarter of 2020 due to increased insurance premiums.

The change in net cash used for investing activities was primarily attributable to a decrease in expenditures for property, plant and equipment at the NAMining segment.

2021 2020 Change

Financing activities:

Net reductions to long-term debt and revolving credit agreement $ (1,858) $ (3,433) $ 1,575

Net (reductions) additions to long-term debt and revolving credit agreement $ (2,187) $ 9,639 $ (11,826)

Cash dividends paid (1,374) (1,339) (35)

Purchase of treasury shares — (1,002) 1,002

Net cash used for financing activities $ (6,905) $ (8,651) $ 1,746

The change in net cash used for financing activities was primarily due to fewer repayments during the first nine months of 2020 compared with the first nine months of 2019.

Net cash (used for) provided by financing activities $ (3,561) $ 7,298 $ (10,859)

The change in net cash (used for) provided by financing activities was primarily due to repayments during the first three months of 2021 compared with borrowings during the first three months of 2020.

Financing Activities

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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 $9 million at September 30, 2020.

At September 30, 2020, the excess availability under the NACoal Facility was $138.0 million, which reflects a reduction for outstanding letters of credit of $3.0 million.

Borrowings outstanding under the NACoal Facility were $28 million at March 31, 2021.

At March 31, 2021, the excess availability under the NACoal Facility was $119.0 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 September 30, 2020, for base rate and LIBOR loans were 1.00% and 2.00%, respectively.

The applicable margins, effective March 31, 2021, for base rate and LIBOR loans were 1.00% and 2.00%, respectively.

The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios.

The commitment fee was 0.35% on the unused commitment at September 30, 2020.

The weighted average interest rate applicable to the NACoal Facility at September 30, 2020 was 2.11% including the floating rate margin.

The commitment fee was 0.35% on the unused commitment at March 31, 2021.

The weighted average interest rate applicable to the NACoal Facility at March 31, 2021 was 1.87% 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 September 30, 2020, NACoal was in compliance with all financial covenants in the NACoal Facility.

Capital Expenditures

Expenditures for property, plant and equipment and mineral interests were $19.8 million during the first nine months of 2020.

At March 31, 2021, NACoal was in compliance with all financial covenants in the NACoal Facility.

The Company uses surety bonds to guarantee performance of its mine reclamation obligations.

The Company will begin posting collateral of up to $28 million before the end of 2021 or replace a portion of the surety bonds with other instruments of financial assurance acceptable under reclamation regulations.

The Company may post cash collateral, letters of credit or a combination of cash and letters of credit.

The Company is also considering self-bonding where available.

If the Company posts cash collateral, it could increase the amounts of borrowings under the NACoal Facility.

The use of letters of credit would also reduce the amount available under the NACoal Facility.

Expenditures for property, plant and equipment and mineral interests

Expenditures for property, plant and equipment and mineral interests were $4.9 million during the first three months of 2021.

Planned expenditures for the remainder of 2021 are expected to be approximately $42 million, primarily consisting of $25 million in the Coal Mining segment, $7 million in the NAMining segment and $10 million in the Minerals Management segment.

In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at MLMC as it develops a new mine area.

In the NAMining segment, capital expenditures in 2020 are primarily for the acquisition, relocation and refurbishment of draglines.

In the Minerals Management segment, expenditures in 2020 are primarily for the acquisition of mineral interests.

Planned expenditures for 2021 are expected to be approximately $41 million, primarily consisting of $24 million in the Coal Mining segment, $7 million in the NAMining segment and $10 million in the Minerals Management segment.

Capital expenditures are expected to be funded from internally generated funds and/or bank borrowings.

In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at

MLMC as it develops a new mine area.

In the NAMining segment, expected capital expenditures in 2021 are primarily for the

acquisition, relocation and refurbishment of draglines.

In the Minerals Management segment, expected expenditures in 2021 are primarily for the acquisition of mineral and royalty interests.

Expenditures are expected to be funded from internally generated funds and/or bank borrowings.

Capital Structure

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Debt to total capitalization 13% 13% —%

The increase in other net tangible assets was primarily due to increases in Property, plant and equipment as well as payments made for deferred compensation and accrued incentive compensation at September 30, 2020 compared with December 31, 2019.

The increase in other net tangible assets was primarily due to an increase in prepaid insurance from higher insurance premiums at March 31, 2021 compared with December 31, 2020.

Contractual Obligations, Contingent Liabilities and Commitments

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FINANCIAL REVIEW

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

Tons of coal delivered by the Coal Mining segment were as follows for the three months ended March 31:

Unconsolidated operations 7,587 7,681

1 unchanged sentence

Total tons delivered 8,422 8,448

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

The results of operations for the Coal Mining segment were as follows for the three months ended March 31:

Revenues $ 23,739 $ 20,928

Cost of sales 21,602 21,274

Gross profit 4,016 2,416 5,382 4,558

Gross profit (loss) 2,137 (346)

Earnings of unconsolidated operations (a)

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(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Third Quarter of 2020 Compared with Third Quarter of 2019

Revenues increased 8.5% in the third quarter of 2020 compared with the third quarter of 2019 primarily due to an increase in reimbursable costs at MLMC.

The sales price at MLMC is index-based and includes adjustments for coal quality and reimbursable costs.

The following table identifies the components of change in operating profit for the third quarter of 2020 compared with the third quarter of 2019:

Revenues increased 13.4% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to reclamation revenue from Caddo Creek and an increase in tons delivered at MLMC.

During the fourth quarter of 2020, Caddo Creek entered into a contract with a subsidiary of Advanced Emissions Solutions to perform mine reclamation.

As a result of these changes, Caddo Creek financial results are consolidated within the Coal Mining segment.

The following table identifies the components of change in operating profit for the first quarter of 2021 compared with the first quarter of 2020:

Operating Profit

2019 $ 10,492

Increase (decrease) from:

Gross profit 2,483

Selling, general and administrative expenses 1,117

Earnings of unconsolidated operations (1,934)

Net gain on sale of assets 39

Amortization of intangibles (19)

2020 $ 11,174

Operating profit increased $0.7 million in the third quarter of 2020 compared with the third quarter of 2019 primarily due to an increase in gross profit and a decrease in selling, general and administrative expenses, partially offset by a decrease in earnings of unconsolidated operations.

The improvement in gross profit was mainly due to an increase in the profit per ton delivered at MLMC.

The decrease in selling, general and administrative expenses was primarily attributable to lower employee-related expenses.

The decrease in earnings of unconsolidated operations was mainly due to a reduction in tons delivered due to decreases in customer demand and the termination of the Camino Real contract mining agreement effective July 1, 2020.

Camino Real delivered 0.3 million tons in the first six months of 2020 and 1.6 million tons in full-year 2019.

First Nine Months of 2020 Compared with First Nine Months of 2019

Revenues increased 8.2% in the first nine months of 2020 compared with the first nine months of 2019 due to an increase in reimbursable costs and tons delivered at MLMC.

The sales price at MLMC is index-based and includes adjustments for coal quality and reimbursable costs.

The following table identifies the components of change in operating profit for the first nine months of 2020 compared with the first nine months of 2019:

Operating Profit

2019 $ 27,761

Increase (decrease) from:

Earnings of unconsolidated operations (623)

Net gain on sale of assets (112)

Amortization of intangibles (205)

Selling, general and administrative expenses (195)

Gross profit 824

2020 $ 25,857

Operating profit decreased $1.9 million in the first nine months of 2020 compared with the first nine months of 2019 primarily due to a decrease in earnings of unconsolidated operations, partially offset by a decrease in selling, general and administrative expenses and an increase in gross profit.

The decrease in earnings of unconsolidated operations was mainly due to a reduction in tons delivered, primarily at Sabine, Camino Real, Coteau and Bisti, partially offset by an increase in tons delivered at Coyote Creek.

The power plants served by Sabine and Coteau were dispatched at lower rates during the first nine months of 2020 compared with the first nine months of 2019.

The reduction in tons delivered at Camino Real was due to a decrease in customer demand in the first six months of 2020 and the termination of the Camino Real contract mining agreement effective July 1, 2020.

The reduction in coal tons delivered at Bisti was due to an extended plant outage during the first nine months of 2020.

The decrease in selling, general and administrative expenses was primarily attributable to lower employee-related expenses partially offset by higher outside service fees.

The improvement in gross profit was primarily due to an increase in the profit per ton delivered at MLMC.

Operating profit increased $1.5 million in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in gross profit, partially offset by a decrease in earnings of unconsolidated operations.

The improvement in gross profit was mainly due to an increase in customer demand, which contributed to a reduction in the cost per ton and an overall increase in the profit per ton delivered at MLMC.

In addition, a reduction in costs at Centennial Natural Resources contributed to the improvement in gross profit.

The decrease in earnings of unconsolidated operations was primarily due to the termination of the Camino Real Fuels, LLC, contract mining agreement effective July 1, 2020 and the expected reduction in fees earned at the Liberty Mine as the scope of final reclamation activities continues to decline.

Unfavorable selling, general and administrative expenses were primarily due to an increase in insurance expense partially offset by a decrease in employee-related expenses.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

Tons of limestone delivered by the NAMining segment were as follows for the three months ended March 31:

Unconsolidated operations 2,192 2,255

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Total tons delivered 12,598 12,534

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

The results of operations for the NAMining segment were as follows for the three months ended March 31:

Revenues $ 16,142 $ 11,624

Cost of sales 15,465 10,581

Gross profit (loss) 635 (414) 2,318 616

Gross profit 677 1,043

Earnings of unconsolidated operations (a)

868 1,227 2,822 2,330

Selling, general and administrative expenses 1,487 1,288

Gain on sale of assets (2) —

Operating profit (loss) $ 244 $ (358) $ 1,519 $ (743)

Operating profit $ 130 $ 731

(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Third Quarter of 2020 Compared with Third Quarter of 2019

Revenues increased 5.0% in the third quarter of 2020 compared with the third quarter of 2019 primarily due to an increase in tons delivered and work related to the Thacker Pass lithium project.

The following table identifies the components of change in operating profit (loss) for the third quarter of 2020 compared with the third quarter of 2019:

Operating Profit (Loss)

Revenues increased 38.9% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in reimbursable costs partially offset by changes in the mix of customer deliveries.

Reimbursable costs have an offsetting amount in cost of sales and have no impact on operating profit.

The following table identifies the components of change in operating profit for the first quarter of 2021 compared with the first quarter of 2020:

Operating Profit

Increase (decrease) from:

Gross profit (366)

Earnings of unconsolidated operations (359)

Selling, general and administrative expenses (199)

Net gain on sale of assets (12)

Operating profit increased $0.6 million in the third quarter of 2020 compared with the third quarter of 2019 primarily due to an increase in gross profit partially offset by a decrease in earnings of unconsolidated operations.

Both variances are due to changes in the mix of customer requirements.

First Nine Months of 2020 Compared with First Nine Months of 2019

Revenues increased 8.6% in the first nine months of 2020 compared with the first nine months of 2019 primarily due to favorable changes in the mix of customer requirements and work related to the Thacker Pass lithium project.

The following table identifies the components of change in operating profit (loss) for the first nine months of 2020 compared with the first nine months of 2019:

Operating Profit (Loss)

Increase (decrease) from:

Gross profit 1,702

Earnings of unconsolidated operations (38)

Net gain on sale of assets 2

Selling, general and administrative expenses (160)

Operating profit increased $2.3 million in the first nine months of 2020 compared with the first nine months of 2019 primarily due to increases in gross profit and earnings of unconsolidated operations from favorable changes in the mix of customer requirements.

Operating profit decreased $0.6 million in the first quarter of 2021 compared with the first quarter of 2020 primarily due to a decrease in gross profit for work related to the Thacker Pass lithium project and an increase in selling, general and administrative expenses mainly attributable to higher employee-related costs.

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

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

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

The results of operations for the Minerals Management segment were as follows for the three months ended March 31:

Revenues $ 5,500 $ 5,241

3 unchanged sentences

Operating profit $ 4,235 $ 4,267

Revenues and operating profit decreased in the three and nine months ended September 30, 2020 compared with the 2019 periods.

The first nine months of 2019 included significant royalty income generated by a large number of new gas wells put into commission during 2018 and early 2019.

These wells are operated by third parties to extract natural gas from the Company's Ohio Utica shale mineral reserves.

Since new wells have high initial production rates and follow a natural decline before settling into relatively stable, long-term production, royalty income in 2020 decreased substantially from 2019 levels.

Lower commodity prices in 2020 compared with 2019 also contributed to the reduction in revenues and operating profit.

The increase in selling, general and administrative expenses is due to a $0.5 million charge in the first nine months of 2020 to write-off certain leasehold interests.

Revenues increased 4.9% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in royalty income generated from the Permian Basin mineral interests acquired in the fourth quarter of 2020.

This increase was partially offset by an expected reduction in royalty income generated from Ohio mineral interests due to declines in production volumes from existing wells and lower natural gas prices.

Operating profit was comparable as the increase in revenue was offset by an increase in selling, general and administrative expenses due to higher employee-related expenses.

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the three and nine months ended September 30:

THREE MONTHS NINE MONTHS

2020 2019 2020 2019

Unallocated Items and Eliminations were as follows for the three months ended March 31:

Operating loss $ (4,719) $ (4,603)

Operating loss decreased in the three and nine months ended September 30, 2020 compared with the 2019 periods primarily due to lower employee-related expenses.

The operating loss was comparable between periods.

NACCO Industries, Inc.

Coal Mining Outlook - 2021

Coal deliveries for the fourth quarter of 2020 are expected to be comparable to the fourth quarter of 2019.

Despite comparable deliveries, fourth-quarter 2020 operating profit is expected to decrease compared with the 2019 fourth quarter.

The decrease in operating profit is mainly due to an anticipated reduction in results at MLMC and a reduction in earnings at the unconsolidated mining operations.

Results at MLMC are expected to decline significantly from the fourth quarter of 2019 primarily due to an increase in the cost per ton delivered.

Overall, full-year 2020 coal deliveries and operating profit are expected to be lower than 2019, mainly as a result of a decrease in earnings at the unconsolidated mining operations due to reduced customer requirements and the termination of the Camino Real contract mining agreement.

As mentioned above, the contract between Camino Real and its customer, DRCP was unexpectedly terminated effective July 1, 2020 and the mine was closed.

During the third quarter of 2020, Sabine’s customer, American Electric Power, reduced its annual lignite coal requirements to be between 1.4 million and 1.7 million tons compared with 2.6 million tons delivered in 2019.

The customer reduced its expected future requirements because the plant served by the Sabine Mine was dispatched at a much lower rate in 2020 than in 2019, and that trend is expected to continue.

On September 30, 2020, the Company's Caddo Creek's customer entered into an agreement for the sale of their activated carbon manufacturing business, including its Marshall Mine operated by Caddo Creek, to a subsidiary of AES.

AES announced its intent to close the mine, which delivered 0.2 million tons in 2019.

Caddo Creek has entered into a contract to perform the required mine reclamation.

Changes in customer power plant dispatch, including changes due to historically low natural gas prices and the continued increase in renewable generation, particularly wind, could reduce customer demand below anticipated levels, which could further unfavorably affect the Company’s fourth quarter and full-year 2020 results, as well as its 2021 outlook.

Coal Mining Outlook - 2021

In 2021, the Company expects coal deliveries to be comparable to 2020 based on current expectations of customer requirements.

Coal Mining operating profit in 2021 is expected to decrease compared with 2020, mainly in the first half of the year.

This decrease is primarily the result of an expected increase in operating expenses and an anticipated reduction in earnings at the unconsolidated Coal Mining operations primarily due to a contractually agreed reduction in fee-based earnings at the Liberty Mine as the scope of final mine reclamation activities is reduced.

Results at the consolidated mining operations are expected to be comparable between years, as a decrease in earnings at MLMC is expected to be offset by a lower operating loss at Centennial.

At MLMC, results are expected to be lower due to an increase in the cost per ton of coal delivered in 2021 compared with 2020.

In general, cost per ton delivered is lowest when the power plant requires a consistently high level of coal deliveries, primarily because costs are spread over more tons.

On May 7, 2020, GRE, Falkirk Mine's customer and the Company's second largest 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.

GRE is willing to consider opportunities to sell Coal Creek Station, and NACCO is actively engaged in the exploration of options that could, if successful, allow for transfer of ownership of the power plant to one or more third parties, which would preserve jobs at both Coal Creek Station and the Falkirk Mine.

Falkirk Mine is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract under which Falkirk also supplies a moderate amount of lignite coal annually to Spiritwood Station.

In 2019, Falkirk contributed approximately $16 million to NACCO’s Earnings from Unconsolidated Operations.

The closure of Coal Creek Station will have a material adverse effect on the long-term earnings of NACCO Industries.

The terms of the contract between the Company and GRE specify that

GRE is responsible for all costs related to mine closure, including but not limited to, final mine reclamation costs, post-retirement medical benefits and pension costs with respect to Falkirk employees.

Capital expenditures are expected to be approximately $12 million in the fourth quarter of 2020 and approximately $20 million for the 2020 full year, and approximately $24 million in 2021.

The Company expects high levels of capital expenditures in the remainder of 2020 and in 2021 primarily related to MLMC's development of a new mine area.

These capital expenditures will result in an increase in depreciation that will unfavorably affect operating profit in future periods.

Operating profit in 2021 is expected to decrease compared with 2020, excluding prior year charges of $4.6 million related to an asset impairment, an inventory write-down and a voluntary separation program.

The decrease in operating profit is primarily attributable to substantially lower full-year earnings expected at MLMC and reduced earnings at the unconsolidated Coal Mining operations.

MLMC earnings are expected to be lower as a result of an anticipated decrease in the profit per ton of coal delivered in 2021 compared with 2020, due in part to an increase in depreciation expense associated with development of a new mine area.

The anticipated reduction in earnings at the unconsolidated Coal Mining operations is expected to be mainly driven by a reduction in fees earned at the Liberty Mine, as the scope of final mine reclamation activities continues to decline.

A decrease in employee-related costs resulting from lower headcount, primarily due to the 2020 voluntary separation program, is expected to be partially offset by higher insurance expense.

Segment EBITDA, excluding the $1.1 million asset impairment charge recognized in 2020, is expected to increase moderately over the prior year as the increase in depreciation expense will be partially offset by the other items contributing to the reduction in operating profit.

Changes in customer power plant dispatch, including changes related to natural gas price fluctuations and the continued increase in renewable generation, particularly wind, could reduce customer demand below anticipated levels, which could further unfavorably affect the Company’s 2021 outlook.

During 2020, GRE, Falkirk Mine's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

The closure is not expected to affect 2021 results.

Falkirk Mine is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract, which specifies that GRE is responsible for all costs related to mine closure, including mine reclamation.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however, the terms of the existing mining contract could change.

The owner of the power plant served by the Company's Sabine Mine in Texas intends to retire the power plant in 2023.

Deliveries from Sabine to the power plant are expected to continue until the first quarter of 2023 at which time the mine expects to begin final reclamation.

Mine reclamation is the responsibility of the customer.

Premature closure of power plants served by the Company's mines would have a material adverse effect on the future Earnings of unconsolidated operations of the Coal Mining segment and on the long-term earnings and cash flows of NACCO.

Capital expenditures are expected to be approximately $27 million in 2021.

The elevated levels of capital expenditures in the Coal Mining segment expected through 2021 relate to the development of a new mine area at MLMC.

The increase in capital expenditures associated with mine development will result in higher depreciation expense in future periods that will unfavorably affect future operating profit.

Capital expenditures for MLMC are expected to return to lower pre-2019 levels beginning in 2022 through the end of the current contract term in 2032.

NAMining Outlook

In the fourth quarter of 2020, NAMining expects limestone deliveries to increase moderately over the fourth quarter of 2019, resulting in an overall modest increase in tons delivered for the 2020 full year compared with full-year 2019.

NAMining expects operating profit in the fourth quarter of 2020 to improve substantially over the fourth quarter of 2019, but less significantly than in the previous three quarters of 2020.

Operating profit is expected to benefit from favorable changes in the mix of customer requirements.

Full-year 2020 operating profit is expected to increase significantly over 2019.

In 2021, NAMining expects full year operating profit to be comparable to 2020 with its existing customer contracts.

NAMining is pursuing a number of growth initiatives that if successful would be accretive to future earnings.

Capital expenditures are expected to be approximately $3 million in the fourth quarter of 2020 and approximately $13 million and $7 million for the 2020 full year and 2021, respectively, primarily for the acquisition, relocation and refurbishment of draglines.

NAMining expects an increase in tons delivered, operating profit and Segment EBITDA for the 2021 full year over 2020 as a result of increased production under existing contracts and contributions from new mining contracts.

The increase in operating profit is expected to be partially offset by an increase in operating expenses primarily due to higher employee-related costs.

During the first quarter of 2021, NAMining entered into a 15-year mining services contract with a new customer at a limestone quarry in Central Florida.

NAMining will operate a smaller dragline at this quarry over the next two years while it relocates and commissions a larger dragline that will increase production capacity.

Deliveries are expected to be approximately 1.5 million tons annually once mining commences with the larger dragline, which is anticipated to occur in 2023.

NAMining also amended a contract with an existing customer to operate an additional dragline at an existing limestone quarry in Florida.

Finally, early in the second quarter of 2021, NAMining entered into a one-year mining services contract with an existing customer for a sand and gravel quarry in Indiana.

This customer, which is among the largest aggregates producers in the United States, is hopeful that this new quarry will operate for multiple years providing aggregates for a multi-year transportation infrastructure project near Indianapolis.

Deliveries are expected to be between 0.6 million to 1.0 million tons.

NAMining anticipates that these new or

revised contracts will be accretive to earnings in 2021.

NAMining has a substantial pipeline of potential new projects and is pursuing a number of growth initiatives that if successful would be accretive to future earnings.

Capital expenditures are expected to be approximately $10 million for the 2021 full year primarily for the acquisition, relocation and refurbishment of draglines.

In 2019, NAMining's subsidiary, Sawtooth Mining, LLC, entered into a mining agreement to serve as the exclusive contract miner for the Thacker Pass lithium project in northern Nevada, owned by Lithium Nevada Corp., a subsidiary of Lithium Americas Corp.

Lithium Nevada is in the process of securing permits and currently expects to commence construction in 2021 and production of lithium products in 2023.

In January 2021, Thacker Pass received a Record of Decision from the U.S.

Bureau of Land Management for the Thacker Pass Project following the completion of the National Environmental Policy Act Process.

This decision represents an important milestone in the development and the permitting of the Thacker Pass Project.

All major permits are expected to be received by the end of 2021.

Minerals Management Outlook

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas and, to a lesser extent, oil, natural gas liquids and coal, extracted primarily by third parties.

The 2019 results included a substantial increase in royalty income, primarily in the first nine months of 2019, generated by a large number of new gas wells put into commission during 2018 and early 2019.

Given expected lower natural gas prices, fewer expected new wells, lower commodity prices and the natural production decline that occurs early in the life of a well, fourth quarter and full-year 2020 royalty income is expected to be substantially lower than 2019 levels.

Given these factors, royalty income from existing assets is also expected to be down substantially in 2021 from 2020.

A sustained decline in natural gas prices could unfavorably affect the Company’s outlook.

Decline rates for individual wells can vary due to factors like well depth, well length, formation pressure and facility design.

In addition, royalty income can fluctuate favorably or unfavorably in response to a number of factors outside of the Company's control, including the number of wells being operated by third parties, fluctuations in commodity prices (primarily natural gas), fluctuations in production rates associated with operator decisions, regulatory risks, the Company's lessees' willingness and ability to incur well-development and other operating costs, and changes in the availability and continuing development of infrastructure.

Minerals Management is targeting investments in mineral and royalty interests of approximately $15 million in the fourth quarter of 2020 and $10 million in 2021, although the timing of the fourth quarter investments could slip into 2021.

These investments are expected to be accretive to earnings, but each investment's contribution to earnings is dependent on the timing, size and stage of mineral development.

The Company's strategy is to selectively acquire oil and gas mineral and royalty interests with a balance of near-term cash flow yields and long-term growth potential, in oil-rich basins offering diversification from the Company's legacy mineral interest in predominantly natural gas-rich basins.

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas, oil, natural gas liquids and coal, extracted primarily by third parties.

Minerals Management is targeting investments in mineral and royalty interests totaling approximately $10 million in 2021.

These investments are expected to be accretive to earnings, but each investment's contribution to earnings is dependent on the details of each investment, including the size and type of interests acquired and the stage and timing of mineral development.

As part of this strategy, early in the second quarter of 2021, Minerals Management completed a small acquisition in the Delaware Basin for a purchase price of $0.3 million and a larger acquisition in the Eagle Ford Basin.

The Eagle Ford Basin acquisition includes approximately 14.1 thousand gross acres and 1.7 thousand net royalty acres for a preliminary purchase price of $4.7 million.

Excluding the impact of the $7.3 million impairment charge in 2020 related to legacy assets and any income related to asset acquisitions made after March 31, 2021, operating profit and Segment EBITDA in the Minerals Management segment is expected to decrease moderately in 2021 from 2020.

An anticipated reduction in royalty income from existing Ohio mineral and royalty assets is expected to be partially offset by royalty income generated from the Permian Basin mineral interests acquired in the fourth quarter of 2020.

Income from existing Ohio assets is expected to decline as a result of anticipated lower natural gas prices, fewer expected new wells in Ohio, lower commodity prices and the natural production decline that occurs early in the life of a well.

Another sustained decline in natural gas prices could unfavorably affect the Company’s outlook.

The acquired Permian Basin interests included producing wells that are generating royalty revenues, and are already contributing to 2021 earnings, as well as royalty and mineral interests that have not yet been developed.

These acquired interests align with the Company’s strategy of selectively acquiring mineral and royalty interests with a balance of near-term, cash-flow yields and long-term growth potential, in oil-rich basins offering diversification from the Company’s legacy mineral interests.

Consolidated 2021 Outlook

Overall, NACCO expects a modest increase in consolidated operating profit in the fourth quarter of 2020 over 2019, which included a $2.0 million unfavorable mine reclamation adjustment in the Coal Mining segment.

Excluding this adjustment, fourth-quarter 2020 consolidated operating profit and net income are expected to decrease significantly from the prior year, primarily as a result of anticipated lower results in the Coal Mining segment and an increase in income tax expense, partially offset by lower unallocated employee-related costs.

The Company expects a significant decrease in full-year 2020 consolidated operating profit and net income compared with 2019, primarily due to the substantial decrease in operating profit at Minerals Management in the first nine months of 2020 and the anticipated reduction in full-year earnings at the Coal Mining segment.

In addition, the Company received a final settlement associated with a prior India venture in 2020 that was less than the initial award received in 2019.

These items are expected to be partially offset by an improvement in earnings at the NAMining segment and an anticipated lower effective income tax rate in 2020 compared with 2019.

For the full year, NACCO anticipates that its 2020 effective income tax rate will be in the range of 5% to 7% based on the current forecasted mix of earnings.

Consolidated capital expenditures are expected to be approximately $30 million in the fourth quarter of 2020 and approximately $50 million for the full year.

As a result of the increase in capital expenditures and payments made in the first half of the year related to deferred compensation and other payroll liabilities, consolidated cash flow before financing activities is expected to be a significant use of cash in the 2020 full year.

In 2021, NACCO expects consolidated net income to decrease significantly from 2020.

An anticipated reduction in earnings in the Minerals Management segment and lower earnings in the Coal Mining segment are expected to be partially offset by lower income tax expense as the Company expects the full-year 2021 effective income tax rate to be between negative 5% and negative 7%.

In light of ongoing regulatory, economic and public opinion challenges facing the coal-fired power generation industry, the Company commenced a voluntary retirement program for certain corporate employees in the fourth quarter.

The program is expected to be substantially completed by December 31, 2020 and reduce general and administrative expenses in 2021 and future years.

The amount of savings, and related one-time separation costs, will depend on the level of participation in the program.

Cash flow before financing activities is expected to improve and be a solid generation of cash in 2021, as compared with a significant use of cash in 2020, but not to the level realized in 2019.

Consolidated capital expenditures are expected to be approximately $41 million in 2021, primarily consisting of $24 million in the Coal Mining segment, $10 million in the Minerals Management segment and $7 million in the NAMining segment.

Significant uncertainties exist regarding the COVID-19 pandemic, including the extent of economic disruption it may cause in the future.

The extent to which COVID-19 impacts the Company going forward will depend on numerous factors and future developments that remain uncertain.

While the Company's mining operations to date have not been directly affected by the pandemic, future developments, which are highly uncertain and unpredictable, could significantly and rapidly cause a deterioration in the Company’s results, supply chain channels and customer demand.

The extent to which COVID-19 may adversely impact the Company depends on many factors, including but not limited to the extent of new outbreaks, the extent to which additional shutdowns may be imposed, the nature of the government public health guidelines and the public's adherence to those guidelines, the success of businesses reopening fully, and the timing for proven treatments and vaccines for COVID-19.

NACCO continues to maintain procedures to limit the exposure of employees to COVID-19.

Even after the COVID-19 pandemic has subsided, the Company may experience material adverse effects due to a resulting decline in economic activity.

Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets and may adversely impact NACCO's stock price.

One of the Company’s core strategies is to pursue activities which can strengthen the resiliency of its existing coal mining operations.

The Company works to drive down coal production costs and maximize efficiencies and operating capacity at mine locations to help customers with management fee contracts be more competitive.

Management continues to view the long-term business outlook positively.

The outlook for growth in the NAMining and Minerals Management segments and in the Company's Mitigation Resources ® business is strong.

Each of these businesses continues to expand its pipeline of potential new projects with opportunities for growth and diversification.

In the first four months of 2021, NAMining executed three new agreements and Minerals Management completed two acquisitions, demonstrating success in executing on their growth strategies.

Excluding the prior year charges of $12.1 million related to asset impairments, an inventory write-down and the voluntary separation program, as well as the favorable impact of additional business development activities, the Company expects substantially lower net income as a result of lower operating profit, an anticipated increase in interest expense and a reduction in interest income.

Consolidated EBITDA in 2021 is expected to increase moderately over 2020, adjusted for prior year asset impairment charges.

The Company expects a tax benefit rate between 3% and 5% in 2021.

The Company expects to recognize a tax benefit rather than tax expense due to the mix of earnings and the benefit from percentage depletion at certain of the Company's mining operations.

In light of ongoing regulatory, economic and public opinion challenges facing the coal-fired power generation industry, in late 2020, the Company offered a voluntary separation program for certain corporate headquarters employees.

Estimated net benefits from this voluntary separation program are expected to be between $1.5 and $2.5 million annually beginning in 2021.

Cash flow before financing activities in 2020 included a significant use of cash related to changes in working capital, capital expenditures and the acquisition of mineral royalty interests.

The Company anticipates positive cash flow before financing activities in 2021 but at a level below the level of cash generated in 2019.

Consolidated capital expenditures are expected to be approximately $47 million in 2021.

The extent to which COVID-19 impacts the Company going forward will depend on numerous factors, including but not limited to the duration of the ongoing pandemic, the severity of any COVID-19 variants, the effectiveness of actions taken to contain and treat COVID-19 and its variants, the nature of, and the public's adherence to, public health guidelines, the pace of vaccinations and subsequent achievement of herd immunity, as well as the severity of pandemic-related supply chain and cost inflation challenges and the pace and the extent of economic recovery.

While the Company's existing mining operations to date have not been materially affected by the pandemic, future developments, which are highly uncertain and unpredictable, could significantly and rapidly cause a deterioration in the Company’s results, supply chain channels and customer demand.

Growth and Diversification

The Company is pursuing growth and diversification by strategically leveraging its core mining and natural resources management skills to build a strong portfolio of affiliated businesses.

NAMining is pursuing growth and diversification by expanding the scope of its business development activities to include potential customers who require a broad range of minerals and materials and by leveraging the Company’s core mining skills to expand the range of contract mining services it provides.

NAMining advanced this effort in early 2021, when it entered into a contract to mine sand and gravel in Indiana, expanding the traditional scope of its core limestone mining business in Florida.

In addition, NAMining is pursuing opportunities to provide comprehensive mining services to operate entire mines when appropriate, as is the case at the new lithium project in Nevada.

The goal is to build NAMining into a leading provider of contract mining services for customers who produce a wide variety of minerals and materials.

The Company believes NAMining can grow to be a substantial contributor to operating profit, delivering unlevered after-tax returns on invested capital in the mid-teens as this business model matures and achieves significant scale.

The Minerals Management segment continues its efforts to grow and diversify by pursuing acquisitions of additional mineral and royalty interests in the United States, in what the Company believes is a buyer-friendly market.

Once mineral and royalty interests have been acquired, the Minerals Management segment will benefit from the continued development of its mineral properties without additional capital investment.

This business model can deliver higher average operating margins over the life of a reserve than traditional oil and gas companies that bear the cost of exploration, production and/or development.

Catapult Mineral Partners, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas mineral and royalty interests, has developed a strong network to source and secure new acquisitions, and has a sizeable pipeline of potential acquisitions under review.

The goal is to construct a diversified portfolio of high-quality oil, gas, mineral and royalty interests in the United States that deliver near-term cash flow yields and long-term projected growth.

The Company believes this business will provide unlevered after-tax returns on invested capital in the low-to-mid-teens as the portfolio of reserves and mineral interests grows and this business model matures.

Mitigation Resources continues to expand its business, which creates and sells stream and wetland mitigation credits and provides services to those engaged in permittee-responsible mitigation.

This business offers opportunity for growth and diversification in an industry where the Company has substantial knowledge and expertise and a strong reputation.

The Mitigation Resources business has achieved several early successes and is positioned for additional growth.

The Company's goal is to grow Mitigation Resources into one of the ten largest U.S.

providers of mitigation solutions, largely focused on streams and wetlands, initially in the southeast United States.

While this business is in the early stages of development, the Company believes that Mitigation Resources can provide solid rates of return as this business matures.

The Company also continues to pursue activities which can strengthen the resiliency of its existing coal mining operations.

The Company remains focused on managing coal production costs and maximizing efficiencies and operating capacity at mine locations to help customers with management fee contracts be more competitive.

These activities benefit both customers and the Company's Coal Mining segment, as fuel cost is a significant driver for power plant dispatch.

Increased power plant dispatch results in increased demand for coal by the Coal Mining segment's customers.

The Company continues to evaluate opportunities to expand its coal mining business, however opportunities are likely to be very limited.

The Company continues to look for opportunities to expand its coal mining business where it can apply its management fee business model to assume operation of existing surface coal mining operations in the United States.

However, opportunities are

very limited in the current environment.

Low natural gas prices and growth in renewable energy sources, such as wind and solar, are likely to continue to unfavorably affect the amount of electricity dispatched from coal-fired power plants.

The political and regulatory environment is not receptive to development of new coal-fired power generation projects which would create opportunities to build and operate new coal mines.

However, the Company does continue to seek out and pursue opportunities where it can apply its management fee business model to assume operation of existing surface coal mining operations in the United States.

Outright acquisitions of existing coal mines or mining companies with exposure to fluctuating coal commodity markets, or structures that would create significant leverage, are outside the Company’s area of focus.

The Company is focused on building a strong portfolio of affiliated businesses for diversification.

NAMining continues to expand the scope of its business development activities to grow and diversify by targeting potential customers who require a

broad range of minerals and materials.

NAMining also continues to leverage the Company’s core mining skills to expand the range of contract mining services provided, in addition to providing comprehensive mining services to operate entire mines when appropriate, as is the case at the new lithium project in Nevada.

The Company’s efforts to grow and diversify the Minerals Management segment includes acquiring additional mineral interests or similar investments in the energy industry.

During the second quarter of 2020, the Company’s subsidiary, Catapult Mineral Partners, invested $2.0 million to acquire shares of a public company with a diversified portfolio of royalty producing mineral interests as part of this growth and diversification strategy.

The recent dramatic downturn in petroleum prices provided an opportunity to make this investment at an attractive market multiple for a company with a conservative financial position, strong earnings potential and attractive historical dividend yield.

Mitigation Resources of North America ® was formed to create and sell stream and wetland mitigation credits and provide services to those engaged in permittee-responsible mitigation.

This business has achieved several early successes and is positioned for additional growth.

The Company is leveraging its core mining and natural resources management skills to develop a strong and diverse portfolio of service-based businesses operating in the mining and natural resources industries.

The Company is also committed to maintaining a conservative capital structure while it grows and diversifies without unnecessary risk.

Ultimately, diversified strategic growth is the key to increasing free cash flow available to continue to re-invest in and expand the businesses.

In addition, the political and regulatory environment is not receptive to development of new coal-fired power generation projects which would create opportunities to build and operate new coal mines.

The Company is committed to maintaining a conservative capital structure while it grows and diversifies, while avoiding unnecessary risk.

Strategic diversification will allow for increased free cash flow that can be re-invested to strengthen and expand the businesses.

The Company also continues to maintain the highest levels of customer service and operational excellence with an unwavering focus on safety and environmental stewardship.

5 unchanged sentences

Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation:

(1) changes to or termination of a long-term mining contract, or a customer default under a contract, including any actions taken related to GRE's Coal Creek Station power plant, (2) the duration and severity of the COVID-19 pandemic, any preventive or protective actions taken by governmental authorities, the effectiveness of actions taken globally to contain or mitigate its effects and any unfavorable effects of the COVID-19 pandemic on the Company's suppliers' ability to provide products or replacement parts if the virus continues to spread or quarantines are reinstated, as well as other disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes, terrorist acts, any of which could result in suspension of operations or harm to people or the environment, (3) changes in coal consumption patterns of U.S.

electric power generators or the power industry that would affect demand for the Company's mineral reserves, (4) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (5) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (6) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (7) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (8) weather or equipment problems that could affect deliveries to customers, (9) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons;

(1) changes to or termination of a long-term mining contract, or a customer default under a contract, (2) a significant reduction in purchases by the Company's customers, including changes in coal consumption patterns of U.S.

electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (3) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (4) failure to obtain adequate insurance coverages at reasonable rates, (5) the impact of the COVID-19 pandemic, (6) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (7) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (8) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (9) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (10) weather or equipment problems that could affect deliveries to customers, (11) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons;

the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located;

federal and state legislative and regulatory initiatives relating to hydraulic fracturing;

and the ability of lessees to obtain capital or financing needed for well development operations, (10) changes in the costs to reclaim mining areas, (11) costs to pursue and develop new mining and value-added service opportunities, (12) delays or reductions in coal or aggregates deliveries, (13) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, (14) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (15) the effects of receiving low sustainability scores which could result in the exclusion of the Company's securities from consideration by certain investment funds, and (16) failure to obtain adequate insurance coverages.

and the ability of lessees to obtain capital or financing needed for well development operations and leasing and development of oil and gas reserves on federal lands, (12) changes in the costs to reclaim mining areas, (13) costs to pursue and develop new mining and value-added service opportunities, (14) delays or reductions in coal or aggregates deliveries, (15) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, (16) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (17) the effects of receiving low sustainability scores which could result in the exclusion of the Company's securities from consideration by certain investment funds, and (18) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 1. Financial Statements