What changed in this filing

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Item 9A. Controls and Procedures

2023-03-15 compared with 2022-03-02 · 376 added, 422 removed, 1222 unchanged (40% of the section changed)

15 unchanged sentences

Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the 2023 Proxy Statement under the subheading “Part I — Corporate Governance Information — Directors' Meetings and Committees,” which information is incorporated herein by reference.

Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors, executive officers and holders of more than ten percent of the Company's equity securities will be set forth in the 2022 Proxy Statement under the subheading “Part IV — Other Important Information — Delinquent Section 16(a) Reports,” which information is incorporated herein by reference.

Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors, executive officers and holders of more than ten percent of the Company's equity securities will be set forth in the 2023 Proxy Statement under the subheading “Part IV — Other Important Information,” which information is incorporated herein by reference.

The Company has adopted a code of business conduct and ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar functions.

25 unchanged sentences

4.6 Second Amendment to Amended and Restated Stockholders' Agreement, dated as of February 12, 2021, by and among the Depository, NACCO Industries, Inc., the new Participating Stockholders identified on the signature pages thereto and the Participating Stockholders under the Amended and Restated Stockholders' Agreement, dated as of September 29, 2017, as amended, is incorporated by reference to Exhibit 99.60 of the Company's General statement of acquisition of beneficial ownership on Form SC 13D, filed on February 12, 2021, Commission File Number 1-9172.

4.7 Third Amendment to Amended and Restated Stockholders' Agreement, dated as of February 11, 2022, by and among the Depository, NACCO Industries, Inc., the new Participating Stockholders identified on the signature pages thereto and the Participating Stockholders under the Amended and Restated Stockholders' Agreement, dated as of September 29, 2017, as amended, is incorporated by reference to Exhibit 99.8 of the Company's General statement of acquisition of beneficial ownership on Form SC 13D, filed on February 11, 2022, Commission File Number 1-9172.

62 of the Company's General statement of acquisition of beneficial ownership on Form SC 13D, filed on February 11, 2022, Commission File Number 1-9172.

4.8 Fourth Amendment to Amended and Restated Stockholders' Agreement, dated as of February 1 0 , 2023 , by and among the Depository, NACCO Industries, Inc., the new Participating Stockholders identified on the signature pages thereto and the Participating Stockholders under the Amended and Restated Stockholders' Agreement, dated as of September 29, 2017, as amended, is incorporated by reference to Exhibit 99.67 of the Company's General statement of acquisition of beneficial ownership on Form SC 13D, filed on February 1 0 , 2023 , Commission File Number 1-9172.

4.9 Description of Securities is incorporated herein by reference to Exhibit 4.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, Commission File Number 1-9172.

6 unchanged sentences

10.3* NACCO Industries, Inc.

Executive Long-Term Incentive Compensation Plan (Amended and Restated March 1, 20 21 ) is incorporated herein by reference to Exhibit 10.

1 to the Company's Current Report on Form 8-K, filed by the Company on May 19 , 20 21 , Commission File Number 1-9172.

10.4* NACCO Industries, Inc.

Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 19, 2021) is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on May 19, 2021, Commission File Number 1-9172.

10.5* NACCO Industries, Inc.

Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 19 , 20 21 ) is incorporated herein by reference to Exhibit 10.

2 to the Company's Current Report on Form 8-K, filed by the Company on May 19 , 20 21 , Commission File Number 1-9172.

10.4* Form of Award Agreement for the NACCO Industries, Inc.

23 unchanged sentences

10.15* The North American Coal Corporation Annual Incentive Compensation Plan (Amended and Restated Effective March 1, 2015) is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on May 18, 2015, Commission File Number 1-9172.

Exhibit Number Exhibit Description

10.16* Amendment No.

2 unchanged sentences

10.18 First Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of June 1, 1994, is incorporated herein by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+

Exhibit Number Exhibit Description

10.19 Second Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+

9 unchanged sentences

10.27 Amendment No.

2 to Lignite Sales Agreement, Settlement Agreement and Release by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, LLLP, dated as of November 24, 2021.

10.30 Second Restatement of Coal Sales Agreement by and between The Falkirk Mining Company and Great River Energy, dated as of January 1, 2007, is incorporated herein by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+

10.31 Amendment No.

1 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of January 21, 2011, is incorporated herein by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.

10.32 Amendment No.

2 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of March 1, 2014, is incorporated herein by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Commission File Number 1-9172.

10.33 Amendment No.

3 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of January 1, 2019, is incorporated herein by reference to Exhibit 10.37 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018, Commission File Number 1-9172.

Exhibit Number Exhibit Description

10.34 Restatement of Option Agreement by and among The Falkirk Mining Company, Cooperative Power Association, United Power Association, and the State of North Dakota, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.

2 to Lignite Sales Agreement, Settlement Agreement and Release by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, LLLP, dated as of November 24, 2021, is incorporated herein by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, Commission File Number 1-9172.

10.28 Termination Agreement and Release, by and among The Falkirk Mining Company, Great River Energy and NoDak Energy Investments Corporation, dated June 30, 2021, is incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q, filed by the Company on August 4, 2021, Commission File Number 1-9172.

10.29 Amendment No.

1 to Termination Agreement and Release, by and between The Falkirk Mining Company, NoDak Energy Investments Corporation and Great River Energy, dated as of December 28, 2021.

1 to Termination Agreement and Release, by and between The Falkirk Mining Company, NoDak Energy Investments Corporation and Great River Energy, dated as of December 28, 2021, is incorporated herein by reference to Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, Commission File Number 1-9172.

*** Coal Sales Agreement, by and between The Falkirk Mining Company and Rainbow Energy Center, LLC, dated June 30, 2021, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on August 4, 2021, Commission File Number 1-9172.

10.31 First Amendment to Coal Sales Agreement, by and between The Falkirk Mining Company and Rainbow Energy Center, LLC, dated March 8, 2022, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on May 4, 2022, Commission File Number 1-9172.

10.32 Second Amendment to Coal Sales Agreement, by and between the Falkirk Mining Company and Rainbow Energy Center, LLC, dated August 5, 2022, is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on November 2, 2022, Commission File Number 1-9172.

*** Guaranty by REMC Assets, LP, dated June 17, 2021, is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed by the Company on August 4, 2021, Commission File Number 1-9172.

*** Mortgage, Assignment of Leases, Rents and As-Extracted Collateral, Security Agreement, Financing Statement and Fixture Filing, by and between The Falkirk Mining Company and Rainbow Energy Center, LLC, dated June 30, 2021, is incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed by the Company on August 4, 2021, Commission File Number 1-9172.

Exhibit Number Exhibit Description

10.35 Security Agreement, by and between The Falkirk Mining Company and Rainbow Energy Center, LLC, dated June 30, 2021, is incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed by the Company on August 4, 2021, Commission File Number 1-9172.

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and Northwestern Corporation dated as of October 10, 2012 is incorporated herein by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed by the Company on March 6, 2013, Commission File Number 1-9172.++

Exhibit Number Exhibit Description

10.45 First Amendment to Lignite Sales Agreement, dated as of January 30, 2014, between Coyote Creek Mining Company, L.L.C.

9 unchanged sentences

5 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.57 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, Commission File Number I-9172.

Exhibit Number Exhibit Description

10.50* Amendment No.

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10.52 The North American Coal Corporation Excess Retirement Plan (Amended and Restated Effective January 1, 2020) is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on December 18, 2019, Commission File Number 1-9172.

10.58 Amended and Restated Credit Agreement by and among The North American Coal Corporation and the Lenders party thereto and KeyBank National Association as Syndication Agent, PNC Bank National Association as Administrative Agent and KeyBanc Capital Markets Inc.

and PNC Capital Markets LLC as Joint Lead Arrangers and Joint Bookrunners, dated as of August 11, 2017 is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on August 15, 2017, Commission File Number 1-9172.

10.53 Amended and Restated Credit Agreement by and among The North American Coal Corporation and the Guarantors party thereto and the Lenders party thereto and KeyBank National Association as Syndication Agent, PNC Bank National Association as Administrative Agent and KeyBanc Capital Markets Inc.

2 unchanged sentences

Commission File Number 1-9172.

10.55 ESG Amendment to Amended and Restated Credit Agreement, dated as of June 30, 2022, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on July 7, 2022.

Commission File Number 1-9172.

(21**) Subsidiaries.

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23.1** Consents of experts and counsel.

23.2** Consent of Qualified Person.

23.3** Consent of Qualified Person.

23.4** Consent of experts and counsel.

(24) Powers of Attorney.

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(31) Rule 13a-14(a)/15d-14(a) Certifications.

31(i)(1) Certification of J.C.

** Certification of J.C.

pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(1).

31(i)(2) Certification of Elizabeth I.

** Certification of Elizabeth I.

Loveman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(2).

3 unchanged sentences

(95)** Mine Safety Disclosure Exhibit is attached hereto as Exhibit 95.

96.1** Technical Report Summary relating to The Coteau Properties Company, dated December 31, 2021.

96.2** Technical Report Summary relating to the Coyote Creek Mining Company, LLC., dated December 31, 2021.

96.3** Technical Report Summary relating to The Falkirk Mining Company, dated December 31, 2021.

96.4** Technical Report Summary relating to the Mississippi Lignite Mining Company, dated December 31, 2021.

96.5** Supplemental Figures Attachment

96.1** Technical Report Summary relating to the Mississippi Lignite Mining Company , effective date as of December 31, 2022.

(99.1**) Reserve Report of Catapult Mineral Partners.

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*** Certain confidential information contained in this agreement has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

**** Furnished herewith.

+ Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated March 27, 2013.

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and Subsidiaries are included in Item 15(c):

Schedule I — Condensed Financial Information of the Parent

Schedule II — Valuation and Qualifying Accounts

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of NACCO Industries, Inc.

To the Stockholders and the Board of Directors of NACCO Industries, Inc.

Opinion on the Financial Statements

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Falkirk and Great River Energy Contract Termination

Falkirk VIE Reconsideration Event

Description of the Matter

As discussed in Note 1 to the consolidated financial statements, during June 2021, Great River Energy (“GRE”) entered into an agreement to sell Coal Creek Station and the adjacent high-voltage direct current transmission line to Bismarck, North Dakota-based Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

The closing of the transaction between GRE and Rainbow Energy is subject to the satisfaction of certain conditions.

Upon completion of the sale of Coal Creek Station, the existing Coal Sales Agreement, the existing Mortgage and Security Agreement and the existing Option Agreement between GRE and the Falkirk Mining Company (“Falkirk”), a wholly owned subsidiary of North American Coal Corporation (“NACoal”), will terminate.

If GRE’s efforts to sell the power plant are successful, a new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy will become effective and Falkirk will supply all coal requirements of Coal Creek Station concurrent with Rainbow Energy’s acquisition of the power plant.

The Company evaluated whether the GRE announcement in June 2021 was a variable interest entity (“VIE)” reconsideration event and concluded it was not.

Auditing the disclosure of the terms of the contract termination was especially complex in determining whether the GRE contract termination and the subsequent agreement between Falkirk and Rainbow Energy will result in a reconsideration event, a change in the conclusion that Falkirk meets the definition of a VIE and the determination of the primary beneficiary of the VIE.

As discussed in Note 1 to the consolidated financial statements, on May 2, 2022, Great River Energy (“GRE”) completed the sale of Coal Creek Station and the adjacent high-voltage direct current transmission line to Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

While Falkirk meets the definition of a VIE, the completion of the Rainbow Energy transaction resulted in a VIE reconsideration event.

As the terms of the CSA between Falkirk and Rainbow Energy are substantially the same as the terms of the coal supply contract between Falkirk and GRE, Falkirk remains a VIE and Rainbow Energy is the primary beneficiary;

therefore, NACCO will continue to account for Falkirk under the equity method.

Auditing the disclosure of the terms of the transaction was especially complex in determining whether the completion of the Rainbow Energy transaction resulted in a VIE reconsideration event, a change in the conclusion that Falkirk meets the definition of a VIE and the determination of the primary beneficiary of the VIE.

Evaluating the Company’s judgments in determining whether an entity is a VIE and the primary beneficiary of the VIE requires a high degree of complex auditor judgment.

1 unchanged sentence

We obtained an understanding, evaluated and tested the design and operating effectiveness of the controls surrounding the Company’s processes to assess the implications of significant transactions and events that could trigger a VIE reconsideration event.

To test the implications of the transaction, our audit procedures included, among other things, inspecting the termination agreement between Falkirk and GRE and new CSA between Falkirk and Rainbow Energy that are both effective upon regulatory approval of the sale of Coal Creek Station and evaluating the VIE assessment performed by the Company.

We evaluated the significant terms of the contracts and whether the June 2021 announcement by GRE or the contract termination and subsequent agreement between Falkirk and Rainbow Energy will result in a reconsideration event, a change in the conclusion that Falkirk meets the definition of a VIE and the determination of the primary beneficiary.

To test the implications of the transaction, our audit procedures included, among other things, inspecting the new CSA between Falkirk and Rainbow Energy that became effective upon regulatory approval of the sale of Coal Creek Station and evaluating the VIE assessment performed by the Company.

We evaluated the significant terms of the contract and whether the agreement between Falkirk and Rainbow Energy resulted in a reconsideration event, a change in the conclusion that Falkirk meets the definition of a VIE and the determination of the primary beneficiary.

/s/ Ernst & Young LLP

50 unchanged sentences

Closed mine obligations 1,179 1,297

Gain on equity securities ( 3,423 ) ( 1,226 )

Loss (gain) on equity securities 283 ( 3,423 )

Income from equity method investee ( 2,194 ) —

Other contract termination settlements ( 16,882 ) —

Other, net ( 708 ) ( 584 )

( 17,737 ) ( 1,440 )

Income before income tax provision (benefit) 56,850 14,258

Income tax provision (benefit) 8,725 ( 535 )

Income before income tax provision 87,723 56,850

Income tax provision 13,565 8,725

Net income $ 74,158 $ 48,125

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Other comprehensive income

Current period pension and postretirement plan adjustment, net of $ 864 tax expense and $ 213 tax benefit in 2021 and 2020, respectively

Current period pension and postretirement plan adjustment, net of $ 363 tax benefit and $ 864 tax expense in 2022 and 2021, respectively

( 1,310 ) 2,851

Reclassification of pension and postretirement adjustments into earnings, net of $ 140 and $ 170 tax benefit in 2022 and 2021, respectively

Total other comprehensive income 3,423 ( 262 )

Total other comprehensive (loss) income ( 837 ) 3,423

Comprehensive income $ 73,321 $ 51,548

9 unchanged sentences

Inventories 71,488 54,085

Refundable federal income taxes 15,054 17,615

Federal income tax receivable 15,687 15,054

Prepaid insurance 1,999 2,016

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Accounts payable to affiliates

Revolving credit agreements — 20,000

Current maturities of long-term debt 3,649 2,527

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Gain on sale of assets ( 2,463 ) ( 60 )

Inventory impairment charge — 1,973

Other asset impairment charges — 8,359

Other contract termination settlements ( 15,552 ) —

Asset impairment charges 3,939 —

Other ( 791 ) 1,647

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Other current liabilities 1,026 6,004

Net cash provided by (used for) operating activities 74,875 ( 2,486 )

Net cash provided by operating activities 67,735 74,875

Investing Activities

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Proceeds from the sale of assets 2,837 633

Purchase of equity securities — ( 2,000 )

Proceeds from the sale of private company equity units 18,628 —

Other ( 170 ) ( 219 )

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Financing Activities

Net (reductions) additions to revolving credit agreement ( 26,000 ) 14,000

Net reductions to revolving credit agreement ( 4,000 ) ( 26,000 )

Additions to long-term debt 3,091 3,634

1 unchanged sentence

Cash dividends paid ( 6,012 ) ( 5,617 )

Purchase of treasury shares — ( 1,002 )

Other — ( 1,755 )

Net cash (used for) provided by financing activities ( 33,173 ) 14,028

Net cash used for financing activities ( 9,840 ) ( 33,173 )

Cash and Cash Equivalents

Total decrease for the year ( 2,445 ) ( 34,442 )

Total increase (decrease) for the year 24,743 ( 2,445 )

Balance at the beginning of the year 86,005 88,450

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Conversion of Class B to Class A shares 1 ( 1 ) — — — —

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

Net income — — — 48,125 — 48,125

18 unchanged sentences

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 1— Principles of Consolidation and Nature of Operations

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

The Coal Mining segment operates surface coal mines for power generation companies and an activated carbon producer.

The NAMining segment is a trusted mining partner for producers of aggregates, lithium and other minerals.

The Minerals Management segment promotes the development of mineral interests.

In addition, Mitigation Resources of North America ® ("Mitigation Resources") provides stream and wetland mitigation solutions.

The Coal Mining segment operates surface coal mines for power generation companies.

The NAMining segment is a trusted mining partner for producers of aggregates, activated carbon, lithium and other industrial minerals.

The Minerals Management segment, which includes the Catapult Mineral Partners (“Catapult”) business, acquires and promotes the development of mineral interests.

Mitigation Resources of North America ® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

The Company also has items not directly attributable to a reportable segment.

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Coal Mining Segment

The Coal Mining segment, operating as The 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 model.

Coal is surface mined in North Dakota, Texas, Mississippi, Louisiana and through September 30, 2021, on the Navajo Nation in New Mexico.

Coal is surface mined in North Dakota, Texas, Mississippi and through September 30, 2021, on the Navajo Nation in New Mexico.

Each mine is fully integrated with its customer's operations.

As of December 31, 2022, the Company's operating coal mines were:

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 contract mining agreement between Bisti Fuels Company, LLC (“Bisti”) and its customer, Navajo Transitional Energy Company ("NTEC") was terminated effective September 30, 2021.

As required under the agreement, NTEC paid the Company a termination fee of $ 10.3 million reported on the line Contract termination settlement on the Consolidated Statements of Operations.

As of October 1, 2021, NTEC assumed control and responsibility for operation and all reclamation of the Navajo Mine.

The Coteau Properties Company (“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, owned by Dakota Gasification Company (“Dakota Gas’), a subsidiary of Basin Electric, that manufactures synthetic natural gas and produces fertilizers, solvents, phenol, carbon dioxide, and other chemical products for sale.

During 2020, Basin Electric informed 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.

During August 2021, Bakken Energy (“Bakken”) and Basin Electric signed a non-binding term sheet to transfer ownership of the assets of Dakota Gas to Bakken.

Bakken stated the closing date is expected to be April 1, 2023.

As part of the term sheet between Basin Electric and Bakken, Basin Electric indicated that the Synfuels Plant will continue existing operations through 2025.

The closing is subject to the satisfaction of specified conditions.

Basin Electric is also considering other options for the Synfuels Plant if the transaction with Bakken does

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.

Falkirk operates the Falkirk Mine in North Dakota.

Falkirk is the sole supplier of lignite coal to the Coal Creek Station power plant pursuant to a contract under which Falkirk also supplies approximately 0.3 million tons of lignite coal per year to Spiritwood Station power plant.

Coal Creek Station and Spiritwood Station are owned by Great River Energy (“GRE”).

In May 2020, GRE announced its intent to sell or retire Coal Creek Station and modify Spiritwood Station to be fueled by natural gas.

During June 2021, GRE entered into an agreement to sell Coal Creek Station and the adjacent high-voltage direct current transmission line to Bismarck, North Dakota-based Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), The Falkirk Mining Company (“Falkirk”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).

MLMC is the exclusive supplier of lignite to the Red Hills Power Plant in Ackerman, Mississippi.

Choctaw Generation Limited Partnership ("CGLP") leases the Red Hills Power Plant from a Southern Company subsidiary pursuant to a leveraged lease arrangement.

CGLP's ability to make required payments to the Southern Company subsidiary is dependent on the operational performance of the Red Hills Power Plant.

During 2020, Southern Company revised the estimated cash flows to be received under the leveraged lease which resulted in a full impairment of the lease investment.

If lease payments are not paid in full, the Southern Company subsidiary may be unable to make its corresponding payment to the holders of the underlying non-recourse debt related to the Red Hills Power Plant.

Failure to make the required payment to the debtholders could represent an event of default that would give the debtholders the right to foreclose on, and take ownership of, the Red Hills Power Plant from the Southern Company subsidiary.

On October 27, 2022, Southern Company disclosed in its Form 10-Q that it provided notice to the lessee, CGLP, to terminate the related operating and maintenance agreement effective June 30, 2023.

CGLP failed to make the semi-annual lease payment due December 15, 2022.

As a result, the Southern Company subsidiary was unable to make its corresponding payment to the debtholders.

The parties to the lease agreement are currently negotiating a potential restructuring, which could result in rescission of the termination notice.

The parties to the lease have entered into a forbearance agreement which suspends the related contractual rights of the parties while they continue restructuring negotiations.

The ultimate outcome of this matter cannot be determined at this time but could have a material impact on the Company's financial statements if the operating and maintenance agreement is terminated.

On May 2, 2022, Great River Energy (“GRE”) completed the sale of Coal Creek Station and the adjacent high-voltage direct current transmission line to Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

As a result of the completion of the sale of Coal Creek Station, the Coal Sales Agreement, the Mortgage and Security Agreement and the Option Agreement between GRE and Falkirk were terminated.

The Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy became effective upon the closing of the transaction.

Falkirk continues to supply all coal requirements of Coal Creek Station and is paid a management fee per ton of coal delivered.

To support the transfer to new ownership, Falkirk agreed to a reduction in the current per ton management fee from the effective date of the CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with 2021 fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.

Rainbow Energy is responsible for funding all mine operating costs, including

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

closing of this sale is subject to the satisfaction of certain conditions and presently, the transaction is expected to close during the second quarter of 2022.

Falkirk meets the definition of a variable interest entity (“VIE”).

The Company concluded that GRE’s May 2020 and June 2021 announcements were not reconsideration events;

however, the completion of the Rainbow Energy transaction will result in a reconsideration event.

As the terms of the contract between Falkirk and Rainbow Energy are substantially the same as the terms of the contract between Falkirk and GRE, Falkirk is expected to remain a VIE and Rainbow Energy will become the primary beneficiary;

therefore, NACCO will continue to account for Falkirk under the equity method.

Falkirk and GRE have entered into a termination and release of claims agreement.

Upon completion of the sale of Coal Creek Station, GRE will pay Falkirk $ 14.0 million in cash, as well as transfer ownership of an office building located in Bismarck, North Dakota, and convey membership units in Midwest AgEnergy to NACoal.

NACCO currently holds a $ 5.0 million investment in Midwest AgEnergy, which operates two ethanol facilities in North Dakota.

If GRE's efforts to sell the power plant are successful, a new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy will become effective and Falkirk will supply all coal requirements of Coal Creek Station concurrent with Rainbow Energy’s acquisition of the power plant.

Falkirk will no longer make any coal deliveries to GRE’s Spiritwood Station.

Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs and directly or indirectly providing all of the capital required to operate the mine.

The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

If Rainbow Energy terminates the CSA and closes Coal Creek Station before 2027, Falkirk will be entitled to an additional payment from GRE under the terms of the termination and release of claims agreement.

The additional payment amount ranges from $ 8 million if the closure occurs before 2024 to $ 2 million if the closure occurs in 2026.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with current fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.

If GRE’s efforts to sell the power plant are not successful and GRE elects to prematurely close Coal Creek Station, the early termination of the CSA would have a material adverse effect on the Company's business, financial condition and results of operations.

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

mine reclamation, and directly or indirectly providing all of the capital required to operate the mine.

The initial production period is expected to run through May 1, 2032, but the CSA may be extended or terminated early under certain circumstances.

The Company recognized a gain of $ 30.9 million within the accompanying Condensed Consolidated Statements of Operations during the second quarter of 2022 as GRE paid NACoal $ 14.0 million in cash, as well as transferred ownership of an office building with an estimated fair value of $ 4.1 million, and conveyed membership units in Midwest AgEnergy Group, LLC (“MAG”), a North Dakota-based ethanol business, with an estimated fair value of $ 12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE.

Prior to receiving the membership units from GRE, the Company held a $ 5.0 million investment in the same privately-held company carried at cost, less impairment.

Subsequent to the receipt of the additional membership units, the Company began to account for the investment under the equity method of accounting.

During the third quarter, the Company recorded $ 2.2 million, which represented its share of MAG's earnings on the "Income from equity method investee" line within the accompanying Consolidated Statements of Operations.

On December 1, 2022, HLCP Ethanol Holdco, LLC (“HLCP”) completed its acquisition of MAG.

Upon closing of the transaction, NACCO transferred its ownership interest in MAG to HLCP and received a cash payment of $ 18.6 million and recognized a $ 1.3 million loss during the fourth quarter of 2022 on the line "Other, net" within the accompanying Consolidated Statements of Operations.

The HLCP acquisition agreement includes two contingent earn-out arrangements under which additional payments are possible.

The first earn-out is based on the achievement of EBITDA targets through December 31, 2024.

The second earn-out is based on the development of a carbon dioxide pipeline that will support a carbon dioxide sequestration project over a four-year period commencing on the transaction closing date.

Additional payments to NACCO could range from $ 0 to approximately $ 13.6 million based on achievement of the two earn-outs as well as payment of amounts held in escrow.

Any future payments associated with the earn-outs or amounts held in escrow will be recognized when realized, consistent with the accounting for gain contingencies.

Sabine operates the Sabine Mine in Texas.

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SWEPCO is an American Electric Power (“AEP”) company.

During 2020, AEP announced its intent to retire the Pirkey Plant in 2023.

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

Funding for mine reclamation is the responsibility of SWEPCO.

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

Funding for mine reclamation is the responsibility of a subsidiary of Advanced Emissions Solutions (“AES”).

Caddo Creek entered into a contract with a subsidiary of AES to perform the required mine reclamation.

The reclamation at Caddo Creek is expected to be substantially complete during the first half of 2022.

During 2020, the contract mining agreement between Camino Real Fuels, LLC (“Camino Real”) and its customer, Dos Republicas Coal Partnership (“DRCP”), terminated and resulted in mine closure.

Funding for mine reclamation is the responsibility of DRCP.

AEP intends to retire the Pirkey Plant during March 2023.

Sabine expects deliveries to cease in March 2023 and final reclamation to begin on April 1, 2023.

Funding for mine reclamation is the responsibility of SWEPCO, and Sabine will receive compensation for providing mine reclamation services.

The contract mining agreement between Bisti Fuels Company, LLC (“Bisti”) and its customer, Navajo Transitional Energy Company ("NTEC") was terminated effective September 30, 2021.

As required under the agreement, NTEC paid the Company a termination fee of $ 10.3 million reported on the line Contract termination settlement on the Consolidated Statements of Operations.

As of October 1, 2021, NTEC assumed control and responsibility for operation and all reclamation of the Navajo Mine.

At all operating coal mines other than MLMC, the Company is paid a management fee per ton of coal or heating unit (MMBtu) delivered.

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See Note 16 for further discussion of Coyote Creek's guarantees.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

All operating coal mines other than MLMC meet the definition of a VIE.

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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.

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

See Note 16 for further information on the Unconsolidated Subsidiaries.

While Falkirk meets the definition of a VIE, the completion of the Rainbow Energy transaction resulted in a VIE

reconsideration event.

As the terms of the CSA between Falkirk and Rainbow Energy are substantially the same as the terms

of the coal supply contract between Falkirk and GRE, Falkirk remains a VIE and Rainbow Energy is the primary beneficiary;

therefore, NACCO will continue to account for Falkirk under the equity method.

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

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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.

At Caddo Creek, 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.

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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As diesel fuel is heavily weighted among the indices used to determine the coal sales price, fluctuations in diesel fuel prices can result in significant fluctuations in earnings at MLMC.

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

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

MLMC’s contract with its customer runs through 2032.

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

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

NAMining Segment

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

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

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

The segment is a platform for the Company’s growth and diversification of mining activities outside of the thermal 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 historically operated primarily at limestone quarries in Florida, but is focused on expanding outside of Florida, mining materials other than limestone and expanding the scope of mining operations provided to its customers.

NAMining utilizes both fixed price and management fee contract structures.

As of December 31, 2022, NAMining operates mines in Florida, Texas, Arkansas, Indiana, Virginia and Nebraska and will serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

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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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 2021 and 2020, the Minerals Management segment acquired mineral interests, primarily in the Eagle Ford and Permian Basins 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.

See Note 20 for further discussion of Mineral Management's acquisitions.

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.

• Royalty Interest.

Royalty interests generally result when the owner of a mineral interest leases the underlying minerals to an exploration and production company pursuant to an oil and gas lease.

Typically, the resulting royalty interest is a cost-free percentage of production revenues for minerals extracted from the acreage.

A holder of royalty interests is generally not responsible for capital expenditures or lease operating expenses, but royalty interests may be calculated

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

net of post-production expenses, and typically has no environmental liability.

Royalty interests leased to producers expire upon the expiration of the oil and gas lease and revert to the mineral owner.

• Mineral Interest.

Mineral interests are perpetual rights of the owner to explore, develop, exploit, mine and/or produce any or all of the minerals lying below the surface of the property.

The holder of a mineral interest has the right to lease the minerals to an exploration and production company.

Upon the execution of an oil and gas lease, the lessee (the exploration and production company) becomes the working interest owner and the lessor (the mineral interest owner) has a royalty interest.

• Non-Participating Royalty Interest (“NPRIs”).

NPRI is an interest in oil and gas production which is created from the mineral estate.

The NPRI is expense-free, bearing no operational costs of production.

The term “non-participating” indicates that the interest owner does not share in the bonus, rentals from a lease, nor the right to participate in the execution of oil and gas leases.

The NPRI owner does;

however, typically receive royalty payments.

• Overriding Royalty Interest (“ORRIs”).

ORRIs are created by carving out the right to receive royalties from a working interest.

Like royalty interests, ORRIs do not confer an obligation to make capital expenditures or pay for lease operating expenses and have limited environmental liability;

however, ORRIs may be calculated net of post-production expenses, depending on how the ORRI is structured.

ORRIs that are carved out of working interests are linked to the same underlying oil and gas lease that created the working interest, and therefore, such ORRIs are typically subject to expiration upon the expiration or termination of the oil and gas lease.

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 currently have any material investments under which it would be required to bear the cost of exploration, production or development.

Total consideration for the 2022 and 2021 acquisitions of mineral and royalty interests was $ 11.9 million and $ 5.3 million, respectively.

The 2022 acquisitions included 13.6 thousand gross acres and 880 net royalty acres.

The 2021 acquisitions included 20.6 thousand gross acres and 1.8 thousand net royalty acres.

Total mineral and royalty interests included approximately 141.4 thousand gross acres and 60.8 thousand net royalty acres at December 31, 2022.

See Note 18 for further discussion of Minerals Management.

The Company also manages legacy royalty and mineral interests 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.

NOTE 2— Significant Accounting Policies

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Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less.

Inventories are stated at the lower of cost and net realizable value.

The weighted average method is used for inventory valuation.

Property, Plant and Equipment, Net:

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Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under finance leases, over their estimated useful lives using the straight-line method or the units-of-production method.

Buildings and building improvements are depreciated over the life of the mine, which is generally 30 years.

Buildings and

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building improvements are depreciated over the life of the mine, which is generally 30 years.

Estimated lives for machinery and equipment range from three to 15 years.

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MLMC has approximately $ 125 million of long-lived assets, including property, plant and equipment and its coal supply agreement intangible asset, which are subject to periodic impairment analyses and review.

Identifying and assessing whether impairment indicators exist, or if events or changes in

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circumstances have occurred, including assumptions about future power plant dispatch levels, changes in future sales price, operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in future sales price, operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment.

Actual future operating results could differ significantly from these estimates, which may result in an impairment charge in a future period, which could have a substantial impact on the Company’s results of operations.

Coal Supply Agreement:

The coal supply agreement represents a long-term supply agreement with MLMC's customer and was recorded based on the fair value at the date of acquisition.

The coal supply agreement is amortized based on units of production over the term of the agreement, which expires in 2032.

The Company reviews identified intangible assets for impairment when changes in circumstances or the occurrence of certain events indicate potential impairment.

Self-insurance Liabilities:

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Stock Compensation:

The Company maintains long-term incentive programs that allow for the grant of shares of Class A common stock, subject to restrictions, as a means of retaining and rewarding selected employees for long-term performance and to increase ownership in the Company.

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AND SUBSIDIARIES

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to increase ownership in the Company.

Shares awarded under the plans are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period.

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generally accepted accounting principles, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

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See Note 9 for further discussion of fair value measurements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 3— Revenue Recognition

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

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.

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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.

Included within NAMining, Caddo Creek has 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 Minerals Management segment enters into contracts which grant the right to explore, develop, produce and sell minerals controlled by the Company.

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

Up-front lease bonus payments represent the fixed portion of the transaction price and are recognized over the primary term of the contract, which is generally three to five years .

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.

Each mitigation credit sale is considered a separate performance obligation.

Revenue is recognized at the point in time that control of each mitigation credit transfers to the customer.

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

Under the permittee-responsible stream and wetland mitigation model, the contracts are generally structured as a management fee agreement under which Mitigation Resources is reimbursed for all costs incurred in performing the required mitigation plus an agreed profit percentage or a fixed fee.

The mitigation services provided is the performance obligation and is accounted for as a series.

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

therefore, control is transferred to the customer as work is completed.

Consistent with the conclusion that the customer simultaneously receives and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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AND SUBSIDIARIES

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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 .

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

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 or fixed fee.

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

Significant Judgments

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The Company records royalty income in the month production is delivered to the purchaser.

As a non-operator, the Company has limited visibility into 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 mineral owner the Company has limited visibility into 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 of the product and the price that will be received for the sale of the product.

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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.

During 2022, royalty income of $ 2.1 million was recognized for a settlement related to the Company's ownership interest in certain mineral rights.

During 2021, the Company recognized $ 1.8 million of variable consideration that was previously constrained due to uncertainty of collectability.

During 2020, royalty income recognized in the reporting period related to performance obligations satisfied in prior reporting periods was immaterial.

Disaggregation of Revenue

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AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The following table disaggregates revenue by major sources for the years ended December 31:

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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 contract assets and liabilities and receivables are as follows:

Contract balances

Trade accounts receivable Contract asset

(current) Contract asset

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

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As described above, the Company enters into royalty contracts that grant exclusive right, title, and interest in and to minerals.

The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of an up-front lease bonus payment.

The timing of the payment of the fixed portion of the transaction price is upfront, however, the performance obligation is satisfied over the primary term of the contract, which is generally five years .

The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of

an up-front lease bonus payment.

The timing of the payment of the fixed portion of the transaction price is upfront, however,

the performance obligation is satisfied over the primary term of the contract, which is generally three to five years .

Therefore, at the time any such up-front payment is received, a contract liability is recorded which represents deferred revenue.

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

The amount of revenue recognized in the years ended December 31, 2021 and December 31, 2020 that was included in the opening contract liability was $ 1.4 million and $ 0.9 million, respectively.

This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are generally five years .

The amount of royalty revenue recognized in the years ended December 31, 2022 and December 31, 2021 that was included in the opening contract liability was $ 1.0 million and $ 1.4 million, respectively.

This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are generally three to five years .

The Company expects to recognize $ 0.8 million in 2023, $ 1.5 million in 2024, $ 0.2 million in 2025, and de minimis amounts in 2026 and 2027 related to the contract liability remaining at December 31, 2022.

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(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 4— Inventories

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Total inventories $ 71,488 $ 54,085

During 2020, the Company recorded a $ 2.0 million inventory impairment charge in the line “Cost of sales” in the accompanying Consolidated Statements of Operations as mining costs exceeded net realizable value at MLMC.

The weighted average method is used for inventory valuation.

NOTE 5— Property, Plant and Equipment, Net

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Amortization expense for intangible assets was $ 3.7 million and $ 3.6 million in 2022 and 2021, respectively.

Expected annual amortization expense of the coal supply agreement for the next five years is $ 3.1 million in 2022 through 2026.

Expected annual amortization expense of the coal supply agreement is $ 3.2 million in 2023, $ 3.1 million in 2024 and $ 3.0 million in 2025 through 2027.

NOTE 7— Asset Retirement Obligations

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value of the related long-lived asset and is depreciated either by the straight-line method or the units-of-production method.

liability is accreted each period until the liability is settled, at which time the liability is removed.

If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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AND SUBSIDIARIES

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liability is accreted each period until the liability is settled, at which time the liability is removed.

If the liability is settled for an amount other than the recorded amount, a gain or loss is recognized.

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

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.

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

Coal Mining NAMining Unallocated Items NACCO

Coal Mining Unallocated Items NACCO

Balance at January 1, 2021 $ 25,040 $ 16,692 $ 41,732

Liabilities incurred during the period 9,809 — — 9,809

Liabilities settled during the period ( 184 ) ( 869 ) ( 1,053 )

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Balance at December 31, 2022 $ 28,460 $ 17,542 $ 46,002

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

During 2020, MLMC began development of a new mine area and as such, recorded an additional $ 9.8 million asset retirement obligation and a corresponding $ 9.8 million asset was capitalized as a component of Property, plant and equipment, net.

The asset retirement obligation’s fair value was determined using a discounted cash flow technique and is based upon permit requirements and various estimates and assumptions that would be used by market participants, including estimates of disturbed acreage, reclamation costs and assumptions regarding equipment productivity.

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

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

As a result of the transfer of the mine permits, the Company was relieved of the associated mine reclamation obligations and therefore recorded a $ 4.8 million reduction to Centennial's asset retirement obligation, included in "Liabilities settled during the period" in the table above.

As part of the transfer of the mine permits, the Company also paid $ 3.8 million of cash, recorded $ 1.4 million in Other assets for amounts owed to Centennial from the third-party acquirer, and recognized $ 2.4 million in Other long-term liabilities in the Consolidated Balance Sheets.

The Other long-term liabilities are primarily associated with amounts due to the third-party acquirer upon replacement of outstanding letters of credit.

Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S.

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These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations.

The accretion of the liability is recognized over the estimated life of the asset retirement obligation and is recorded in the line “Closed mine obligations” in the accompanying Consolidated Statements of Operations.

Since Bellaire's properties are no longer active operations, no associated asset has been capitalized.

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Prior to 2021, Bellaire established a $ 5.0 million Mine Water Treatment Trust to provide a financial assurance mechanism in order to assure the long-term treatment of post-mining discharges.

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See Note 9 for further discussion of the Mine Water Treatment Trust.

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(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 8— Current and Long-Term Financing

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NACoal has a secured revolving line of credit of up to $ 150.0 million (the “NACoal Facility”) that was refinanced during 2021 and expires in November 2025.

Borrowings outstanding under the NACoal Facility were $ 4.0 million at December 31, 2021.

There were no borrowings outstanding under the NACoal Facility at December 31, 2022.

At December 31, 2022, the excess availability under the NACoal Facility was $ 116.3 million, which reflects a reduction for outstanding letters of credit of $ 33.7 million.

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The applicable margins, effective December 31, 2022, for base rate and LIBOR loans were 1.23 % and 2.23 %, respectively.

The NACoal Facility has a commitment fee which is based upon achieving various levels

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

The commitment fee was 0.34 % on the unused commitment at December 31, 2022.

During the year ended December 31, 2022, the average borrowing under the NACoal Facility was $ 2.0 million.

The weighted-average annual interest rate, including the floating rate margin, was 2.54 % and 4.50 % at December 31, 2022 and December 31, 2021, respectively.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00.

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of debt to EBITDA ratios.

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

The weighted average interest rate applicable to the NACoal Facility at December 31, 2021 was 4.50 % including the floating rate margin.

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 1.50 to 1.00, or if greater than 1.50 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.

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $ 15.0 million.

At December 31, 2022, NACoal was in compliance with all financial covenants in the NACoal Facility.

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At December 31, 2022 and 2021, the balance of the note was $ 5.7 million and $ 2.6 million and the interest rate was 3.36 % and 0.18 %, respectively.

NACoal has six notes payable that are secured by eleven specified units of equipment, bear interest at a weighted average rate of 4.03 %, and expire at various dates through 2027.

NACoal has seven notes payable that are secured by twelve specified units of equipment, bear interest at a weighted average rate of 4.11 %, and expire at various dates through 2027.

One note includes a principal payment of $ 4.4 million at the end of the term on December 15, 2026.

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

The Mine Water Treatment Trust realized a gain of $ 1.7 million and $ 1.2 million in the years ended December 31, 2021 and 2020, respectively.

The Mine Water Treatment Trust realized a loss of $ 2.2 million and a gain of $ 1.7 million in the years ended December 31, 2022 and 2021, respectively.

See Note 7 for further discussion of Bellaire's Mine Water Treatment Trust.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Prior to 2021, the Company invested $ 2.0 million in equity securities of a public company with a diversified portfolio of royalty producing mineral interests.

The investment is reported at fair value based upon quoted market prices in active markets for identical assets;

1 unchanged sentence

The Company recognized a gain of $ 1.9 million and $ 1.7 million in the years ended December 31, 2022 and 2021, related to the investment in these equity securities.

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

The change in fair value of equity securities is reported on the line Loss (gain) on equity securities in the Other (income) expense section of the Consolidated Statements of Operations.

There were no transfers into or out of Levels 1, 2 or 3 during the year ended December 31, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

Nonrecurring Fair Value Measurements:

The Company regularly performs reviews of potential future development projects and identified certain undeveloped properties where market conditions related to any future development deteriorated during 2020.

The Company recorded the estimated fair value of an office building during the second quarter of 2022.

In determining the $ 4.1 million fair value of the office building, the Company engaged an independent real estate appraiser to appraise the property utilizing observed sales transactions for similar assets as well as consideration of an income approach;

therefore, it is classified as Level 2 within the fair value hierarchy.

The office building is included in Property, plant and equipment, net in the accompanying Consolidated Balance Sheets.

The Company regularly performs reviews of potential future development projects and identified certain legacy assets where future development is unlikely.

As a result, the Company estimated the fair value of the assets using unobservable inputs, which are classified as Level 3 inputs.

The long-lived assets were written down to their estimated fair value, which resulted in a non-cash asset impairment charge of $ 7.3 million in the Minerals Management segment and $ 1.1 million in the Coal Mining segment for certain capitalized leasehold costs, prepaid royalties and other assets during 2020.

The fair value of these long-lived assets was determined to be zero as such assets were deemed to have no future economic benefit based on the Company's analysis using market participant assumptions, and therefore no expected future cash flows.

The long-lived assets, which included land, prepaid royalties and capitalized leasehold costs, were written off to zero in the third quarter of 2022 and resulted in non-cash asset impairment charges of $ 3.9 million in the Minerals Management segment.

The impairment charges are reported on the line Asset impairment charges in the Consolidated Statements of Operations.

4 unchanged sentences

Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable.

Under its mining contracts, the Company recognizes revenue and a related receivable as coal or limestone is delivered.

Under its mining contracts, the Company recognizes revenue and a related receivable as coal or other aggregates are delivered or predevelopment services are provided.

These mining contracts provide for monthly settlements.

5 unchanged sentences

The majority of the Company's leases are operating leases.

See the table below for further information on the Consolidated Balance Sheet.

NACCO does not recognize leases with a term of 12 months or less on the balance sheet.

Instead, the Company recognizes the related lease expense on a straight-line basis over the lease term.

The Company accounts for lease and non-lease components as a single lease component.

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

Leased assets and liabilities include the following:

Description Location DECEMBER 31

2021 DECEMBER 31

Leased assets and liabilities include the following at December 31:

Description Location 2022 2021

Operating Operating lease right-of-use assets $ 6,419 $ 8,911

5 unchanged sentences

(a) Finance leased assets are recorded net of accumulated amortization of $ 0.2 million and $ 0.3 million as of December 31, 2022 and December 31, 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The components of lease expense for the years ended December 31 are as follows:

9 unchanged sentences

Future minimum finance and operating lease payments were as follows at December 31, 2022:

Leases Operating

Finance Leases Operating Leases Total

2023 $ 778 $ 1,599 $ 2,377

7 unchanged sentences

Present value of net minimum lease payments $ 795 $ 8,567

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

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.

1 unchanged sentence

The assumptions used in accounting for ASC 842 for the years ended December 31 are as follows:

Lease term and discount rate 2021 2020

Weighted average remaining lease term (years)

5 unchanged sentences

The following table details cash paid for amounts included in the measurement of lease liabilities for the years ended December 31:

Cash paid for amounts included in the measurement of lease liabilities 2021 2020

Operating cash flows from operating leases $ 2,097 $ 2,260

1 unchanged sentence

Financing cash flows from finance leases 183 275

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 11— Contingencies

17 unchanged sentences

Treasury shares of Class A common stock totaling 2,434,769 and 2,600,661 at December 31, 2022 and 2021, respectively, have been deducted from shares outstanding.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

Stock Repurchase Programs:

Stock Repurchase Program:

On November 10, 2021, the Company's Board of Directors approved a stock purchase program ("2021 Stock Repurchase Program") providing for the purchase of up to $ 20.0 million of the Company’s outstanding Class A common stock through December 31, 2023.

NACCO’s previous repurchase program ("2019 Stock Repurchase Program") would have expired on December 31, 2021 but was terminated and replaced by the 2021 Stock Repurchase Program.

The Company repurchased 32,286 shares of Class A common stock under the 2019 Stock Repurchase Program for an aggregate purchase price of $ 1.0 million during 2020.

The timing and amount of any repurchases under the 2021 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.

1 unchanged sentence

All or part of the repurchases under the 2021 Stock Repurchase Program may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be restricted from doing so under applicable securities laws.

There were no stock repurchases in 2022 or 2021 under the 2021 Stock Repurchase Program.

Stock Compensation:

10 unchanged sentences

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 13— Income Taxes

2 unchanged sentences

Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

The components of income (loss) before income tax provision (benefit) and the income tax provision (benefit) for the years ended December 31 are as follows:

Income (loss) before income tax provision (benefit)

The components of Income before income tax provision and the Income tax provision for the years ended December 31 are as follows:

Income before income tax provision

Domestic $ 87,975 $ 57,019

1 unchanged sentence

$ 87,723 $ 56,850

Income tax provision (benefit)

Income tax provision

Current income tax provision (benefit):

13 unchanged sentences

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before the provision for income taxes.

7 unchanged sentences

Settlements and uncertain tax positions ( 787 ) 166

Coronavirus Aid, Relief, and Economic Security ("CARES") Act - carryback rate differential

Other, net ( 1,278 ) 613

1 unchanged sentence

Effective income tax rate 15.5 % 15.3 %

The Company recorded an income tax expense of $ 8.7 million for the year ended December 31, 2021 on income before income tax of $ 56.9 million, or 15.3 %, compared to income tax benefit of $ 0.5 million on income before income tax of $ 14.3 million, or ( 3.8 %), for the year ended December 31, 2020.

The year ended December 31, 2020 includes $ 7.3 million of discrete tax charges primarily related to settlement of tax examinations, reserves for uncertain tax positions and return to provision adjustments partially offset by a benefit of $ 4.7 million, primarily due to the rate differential related to carrying back losses under the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

The CARES Act allows net operating tax losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

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

There were no material discrete items affecting income tax expense in 2021.

The effective income tax rate for 2021 reflects the impact of higher pre-tax income in 2021 compared with 2020, including the termination fee associated with the Bisti contract termination.

The effective income tax rate varies based upon the mix and timing of earnings between entities that benefit from percentage depletion and those that do not benefit from percentage depletion.

The Company recorded income tax expense of $ 13.6 million for the year ended December 31, 2022 on income before income tax of $ 87.7 million, or 15.5 %, compared to income tax expense of $ 8.7 million on income before income tax of $ 56.9 million, or 15.3 %, for the year ended December 31, 2021.

The income tax provision for the year ended December 31, 2022 includes $ 1.5 million of discrete tax benefits, primarily from the reversal of uncertain tax positions as a result of the conclusion of the IRS examination of the Company’s 2013, 2014, 2015 and 2016 federal income tax returns.

Excluding the $ 1.5 million of discrete tax benefits, the effective income tax rate in 2022 was 17.1 %.

The year ended December 31, 2021 included $ 1.0 million of discrete tax expense.

Excluding the $ 1.0 million of discrete tax expense, the effective income tax rate in 2021 was 13.5 %.

The increase in the effective income tax rate for 2022 compared to 2021, excluding the impact of discrete items, is primarily due to an increase in earnings at entities that do not qualify for percentage depletion.

The benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period.

2 unchanged sentences

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes is as follows:

30 unchanged sentences

State net operating loss $ 17,516 $ 14,694 2022-2041

Federal research credit 2,648 — 2034-2040

Total $ 21,356 $ 14,478

The Company has a valuation allowance for certain state and foreign deferred tax assets.

Based upon the review of historical earnings and the relevant expiration of carryforwards, including utilization limitations in the various state taxing jurisdictions, the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the next twelve months that would have a significant effect on the Company's financial position or results of operations.

Since 2021, the Company has participated in a voluntary program with the IRS called Compliance Assurance Process (“CAP”).

The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most issues prior to the filing of the tax return.

In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings.

The tax returns of the Company and certain of its subsidiaries are under routine examination by various taxing authorities.

The Company has not been informed of any material assessment for which an accrual has not been previously provided and the Company would vigorously contest any material assessment.

Management believes any potential adjustment would not materially affect the Company's financial condition or results of operations.

The Company has not been informed of any material assessment for which an accrual has not been previously provided and the Company would

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings.

The examination of the 2013-2016 U.S.

federal tax returns is ongoing.

The Company has extended the statute of limitations to allow the U.S.

taxing authorities to complete their examination.

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

vigorously contest any material assessment.

Management believes any potential adjustment would not materially affect the Company's financial condition or results of operations.

The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended December 31, 2022 and 2021.

The increase in the gross unrecognized tax benefits in 2020 was primarily due to tax positions related to worthlessness losses for which the timing of deductibility is uncertain.

Approximately $ 5.5 million and $ 6.4 million of the gross unrecognized tax benefits as of December 31, 2022 and 2021, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate.

4 unchanged sentences

Decreases based on settlements with tax authorities ( 928 ) —

Additions based on tax positions related to the current year — 5,628

Balance at December 31 $ 9,626 $ 10,554

The Company records interest and penalties on uncertain tax positions as a component of the income tax provision.

The Company recognized net expense of less than $ 0.1 million and net benefit of less than $ 0.1 million in interest and penalties related to uncertain tax positions during 2021 and 2020, respectively.

The Company recognized net expense of less than $ 0.1 million in interest and penalties related to uncertain tax positions during both 2022 and 2021.

The total amount of interest and penalties accrued was $ 0.3 million and $ 0.2 million as of December 31, 2022 and 2021, respectively.

8 unchanged sentences

All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:

10 unchanged sentences

Net periodic pension income $ ( 1,001 ) $ ( 789 )

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss for the years ended December 31:

Current year actuarial (gain) loss $ ( 3,793 ) $ 667

Amortization of actuarial loss ( 718 ) ( 597 )

Amortization of prior service cost ( 59 ) ( 58 )

Total recognized in other comprehensive (income) loss $ ( 4,570 ) $ 12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) for the years ended December 31:

Current year actuarial (gain) loss $ 1,717 $ ( 3,793 )

Amortization of actuarial loss ( 543 ) ( 718 )

Amortization of prior service cost ( 58 ) ( 59 )

Total recognized in other comprehensive loss (income) $ 1,116 $ ( 4,570 )

The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31:

2 unchanged sentences

Interest cost 1,105 1,002

Actuarial (gain) loss ( 1,367 ) 3,996

Actuarial gain ( 8,396 ) ( 1,367 )

Benefits paid ( 2,650 ) ( 2,572 )

22 unchanged sentences

The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations.

The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds.

All other pension benefit payments are made from assets of the pension plans.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds.

All other pension benefit payments are made from assets of the pension plans.

Future pension benefit payments expected to be paid from assets of the pension plans are:

13 unchanged sentences

Fixed income securities 34.1 % 31.2 % 30.0 % - 40.0 %

Money market 0.4 % 0.4 % 0.0 % - 10.0 %

Money market funds 0.5 % 0.4 % 0.0 % - 10.0 %

The defined benefit pension plans do not have any direct ownership of NACCO common stock.

4 unchanged sentences

Fixed income securities 11,753 13,723

Money market 174 176

Money market funds 178 174

Total $ 34,485 $ 44,009

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

Postretirement Health Care:

4 unchanged sentences

Under the Company's current policy, plan benefits are funded at the time they are due to participants.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31:

4 unchanged sentences

Year that the rate reaches the ultimate trend rate 2029 2029

Set forth below is detail of the net periodic benefit expense (income) for the postretirement health care plans for the years ended December 31:

Set forth below is detail of the net periodic benefit expense for the postretirement health care plans for the years ended December 31:

Service cost $ 12 $ 13

Interest cost 38 27

Amortization of actuarial loss (gain) 19 ( 1 )

Amortization of actuarial loss 64 19

Amortization of prior service credit ( 52 ) ( 54 )

Amortization of curtailment — ( 31 )

Net periodic benefit expense (income) $ 5 $ ( 18 )

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive loss for the years ended December 31:

Current year actuarial (gain) loss $ ( 48 ) $ 194

Amortization of actuarial (loss) gain ( 19 ) 1

Net periodic benefit expense $ 62 $ 5

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss for the years ended December 31:

Current year actuarial gain $ ( 44 ) $ ( 48 )

Amortization of actuarial loss ( 64 ) ( 19 )

Amortization of prior service credit 52 54

Amortization of curtailment — 31

Transfers — 126

Total recognized in other comprehensive loss $ 113 $ 331

Total recognized in other comprehensive (income) loss $ ( 56 ) $ 113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at December 31:

3 unchanged sentences

Interest cost 38 27

Plan amendments — 49

Actuarial (gain) loss ( 48 ) 145

Actuarial gain ( 44 ) ( 48 )

Benefits paid ( 332 ) ( 169 )

21 unchanged sentences

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 and Bellaire.

Mitigation Resources generates and sells stream

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

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

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

stream and wetland mitigation.

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

underground mining activities.

Effective January 1, 2022, the Company changed the composition of its reportable segments.

As a result, the Company retrospectively changed its computation of segment operating profit to reclassify the results of Caddo Creek Resources Company, LLC (“Caddo Creek”) and Demery Resources Company, LLC ("Demery") from the Coal Mining segment into the NAMining segment as these operations provide mining solutions for producers of industrial minerals, rather than for power generation.

The Coal Mining segment now includes only mines that deliver coal to power generation companies.

This segment reporting change has no impact on consolidated operating results.

All prior period segment information has been reclassified to conform to the new presentation.

All financial statement line items below operating profit (other income including interest expense and interest income, the provision for income taxes and net income) are presented and discussed within this Form 10-K on a consolidated basis.

8 unchanged sentences

NAMining customer 17 % 19 %

In addition, for the year ended December 31, 2021, the Coal Mining segment derived approximately 68 % of the Earnings of Unconsolidated Operations from two customers, Basin Electric and GRE.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The following tables present revenue, operating profit, depreciation expense and capital expenditures for the years ended December 31:

25 unchanged sentences

Asset information by segment is not discretely maintained for internal reporting or used in evaluating performance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

NOTE 16— Parent Company Condensed Balance Sheets

The condensed balance sheets of NACCO, the parent company, at December 31 are as follows:

Cash and cash equivalents $ 83,093 $ 85,365

Accounts receivable from affiliates

Other current assets 17,578 20,648

Investment in subsidiaries 268,720 211,468

Property, plant and equipment, net 57 110

Other non-current assets 4,885 5,890

Total Assets $ 374,333 $ 323,976

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities $ 3,865 $ 3,242

Current intercompany accounts payable, net 637 2,337

Note payable to Bellaire 16,750 16,750

Other non-current liabilities 965 1,023

Stockholders’ equity 352,116 300,624

Total Liabilities and Stockholders’ Equity $ 374,333 $ 323,976

The credit agreement at NACoal allows for the transfer of assets to NACCO under certain circumstances.

The amount of NACCO's investment that was restricted at December 31, 2021 totaled approximately $ 1.8 million.

The amount of unrestricted cash available to NACCO included in “Investment in subsidiaries” was $ 1.2 million at December 31, 2021.

Dividends and management fees from its subsidiaries are the primary sources of cash for NACCO.

NOTE 16— Unconsolidated Subsidiaries

5 unchanged sentences

See Note 1 for a discussion of these entities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 14.9 million and $ 19.1 million at December 31, 2022 and 2021, respectively.

6 unchanged sentences

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

Summarized financial information for the unconsolidated subsidiaries is as follows:

11 unchanged sentences

Reimbursed costs have offsetting expenses and have no impact on income before income taxes.

Income before income taxes represents the Earnings of the unconsolidated operations and the Income from other unconsolidated affiliates.

Income before income taxes represents the Earnings of the unconsolidated operations.

NACoal received dividends of $ 49.0 million and $ 51.7 million from the Unconsolidated Subsidiaries in 2022 and 2021, respectively.

2 unchanged sentences

Legal services rendered by Jones Day approximated $ 1.0 million and $ 1.2 million for the years ended December 31, 2022 and 2021.

continues to serve as the Chairman of the Board of Directors of NACCO and Mr.

Rankin supports the President and Chief Executive Officer of NACCO upon request under the terms of a consulting agreement.

serves as the Chairman of the Board of Directors of NACCO and supports the President and Chief Executive Officer of NACCO upon request under the terms of a consulting agreement.

Fees for consulting services rendered by Mr.

Rankin approximated $ 0.5 million for both of the years ended December 31, 2021 and 2020.

Rankin approximated $ 0.3 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively.

Hyster-Yale Materials Handling, Inc.

3 unchanged sentences

The terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.

NOTE 19— Other Events and Transactions

Voluntary Separation Program:

During the fourth quarter of 2020, the Company adopted a voluntary separation program ("2020 VSP") for eligible employees who met certain age and service requirements in an effort to reduce overall headcount at the Company’s headquarters.

The irrevocable acceptance period for associates electing to participate in the 2020 VSP ended during December 2020.

In the fourth quarter of 2020, the Company recorded pre-tax charges for the 2020 VSP of $ 1.8 million included in Selling, general and administrative expense in the accompanying Consolidated Statements of Operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

NOTE 18— Supplemental Oil and Gas Disclosures (Unaudited)

3 unchanged sentences

See Note 1, Note 2 and Note 15 for additional discussion of the Minerals Management segment.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

During 2021 and 2020, the Minerals Management segment acquired additional mineral interests, primarily in the Eagle Ford and Permian Basins in Texas.

Total consideration for the 2021 and 2020 acquisitions of mineral and royalty interests was $ 5.3 million and $ 14.2 million, respectively.

The 2021 acquisitions include 20.6 thousand gross acres and 1.8 thousand net royalty acres.

The 2020 acquisitions include 65.5 thousand gross acres and 1.2 thousand net royalty acres.

Total oil and gas mineral and royalty interests include approximately 127.8 thousand gross acres and 59.9 thousand net royalty acres at December 31, 2021.

Aggregate capitalized costs related to oil and gas royalty and mineral interests with applicable accumulated depreciation, depletion and amortization at December 31 are as follows:

1 unchanged sentence

Proved undeveloped 24,134 16,246

Proved reserves 31,436 19,512

accumulated depreciation, depletion and amortization 1,936 868

14 unchanged sentences

Total 338,280 419,310 27,692,560

Net reserves as of December 31, 2021

Oil (bbl) (1)

NGL (bbl) (1)

Residue gas (Mcf) (2)

Proved developed 167,430 282,230 16,617,360

Proved undeveloped 220 90 1,210

Total 167,650 282,320 16,618,570

One stock tank barrel, or 42 U.S.

1 unchanged sentence

One thousand cubic feet of natural gas at the contractual pressure and temperature bases.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

Estimated Proved Reserves

The following table summarizes changes in proved reserves during the year ended December 31, 2022:

Estimated Proved Reserves

Oil (bbl) (1)

NGL (bbl) (1)

Residue gas (Mcf) (2)

December 31, 2021 167,650 282,320 16,618,570

Purchases 99,345 35,222 202,314

Extensions and discoveries 121,542 68,167 12,801,109

Revisions of previous estimates (3)

( 2,504 ) 95,577 5,405,803

Production ( 46,571 ) ( 61,511 ) ( 7,329,985 )

Other ( 1,182 ) ( 465 ) ( 5,251 )

December 31, 2022 338,280 419,310 27,692,560

One stock tank barrel, or 42 U.S.

gallons liquid volume.

One thousand cubic feet of natural gas at the contractual pressure and temperature bases.

(3) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.

Estimated Proved Undeveloped Reserves ("PUDs")

The following table summarizes changes in PUDs during the year ended December 31, 2022:

Estimated Proved Undeveloped Reserves

Oil (bbl) (1)

NGL (bbl) (1)

Residue gas (Mcf) (2)

December 31, 2021 220 90 1,210

Purchases 21,790 5,104 38,571

Extensions and discoveries 10,780 5,926 1,746,099

Revisions of previous estimates (3)

( 220 ) ( 90 ) ( 1,210 )

December 31, 2022 32,570 11,030 1,784,670

One stock tank barrel, or 42 U.S.

gallons liquid volume.

One thousand cubic feet of natural gas at the contractual pressure and temperature bases.

(3) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.

As an owner of mineral and royalty interests, the Company generally does not have evidence of approval of operators’ development plans.

As a result, proved undeveloped reserve estimates are limited to those relatively few locations for which drilling permits have been publicly filed.

As of December 31, 2022, PUD reserves consists of 42 wells in various stages of drilling or completions.

As of December 31, 2022, approximately 6 % of the Company's total proved reserves were classified as PUDs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share, Percentage Data and Oil and Gas Disclosures)

Standardized Measure of Discounted Future Net Cash Flows

10 unchanged sentences

and actual costs may vary.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except Per Share and Percentage Data)

The following table provides the future net cash flows relating to proved oil and gas reserves based on the standardized measure of discounted cash flows as of December 31, 2022 :

5 unchanged sentences

Standardized measure of discounted cash flows $ 116,526 21 % $ 92,056

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

PARENT COMPANY CONDENSED BALANCE SHEETS

(In thousands)

Cash and cash equivalents $ 83,093 $ 85,365

Accounts receivable from affiliates

Other current assets 17,578 20,648

Investment in subsidiaries 268,720 211,468

Property, plant and equipment, net 57 110

Other non-current assets 4,885 5,890

Total Assets $ 374,333 $ 323,976

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities $ 3,865 $ 3,242

Current intercompany accounts payable, net 637 2,337

Note payable to Bellaire 16,750 16,750

Other non-current liabilities 965 1,023

Stockholders’ equity 352,116 300,624

Total Liabilities and Stockholders’ Equity $ 374,333 $ 323,976

See Notes to Parent Company Condensed Financial Statements.

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31

(In thousands)

Expense (income):

Intercompany interest expense $ 1,172 $ 1,178

Other, net ( 336 ) ( 1,003 )

Administrative and general expenses 4,300 5,658

Loss before income taxes ( 5,136 ) ( 5,833 )

Income tax (benefit) provision ( 463 ) 2,419

Net loss before equity in earnings of subsidiaries ( 4,673 ) ( 8,252 )

Equity in earnings of subsidiaries 52,798 23,045

Net income 48,125 14,793

Current period pension and postretirement plan adjustment, net of $ 864 tax expense and $ 213 tax benefit in 2021 and 2020, respectively

2,851 ( 697 )

Reclassification of pension and postretirement adjustments into earnings, net of $ 170 and $ 129 tax benefit in 2021 and 2020, respectively

Total other comprehensive income 3,423 ( 262 )

Comprehensive Income $ 51,548 $ 14,531

See Notes to Parent Company Condensed Financial Statements.

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS

Year Ended December 31

(In thousands)

Operating Activities

Net income $ 48,125 $ 14,793

Equity in earnings of subsidiaries 52,798 23,045

Parent company only net loss ( 4,673 ) ( 8,252 )

Net changes related to operating activities 8,018 ( 22,822 )

Net cash provided by (used for) operating activities 3,345 ( 31,074 )

Investing Activities

Net cash used for investing activities — —

Financing Activities

Dividends received from subsidiaries — 3,000

Notes payable to Bellaire — ( 200 )

Purchase of treasury shares — ( 1,002 )

Cash dividends paid ( 5,617 ) ( 5,375 )

Net cash used for financing activities ( 5,617 ) ( 3,577 )

Cash and cash equivalents

Decrease for the period ( 2,272 ) ( 34,651 )

Balance at the beginning of the period 85,365 120,016

Balance at the end of the period $ 83,093 $ 85,365

See Notes to Parent Company Condensed Financial Statements.

SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT

NACCO INDUSTRIES, INC.

AND SUBSIDIARIES

NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2021 AND 2020

The notes to Consolidated Financial Statements, incorporated in Item 15 of this Form 10-K, are hereby incorporated by reference into these Notes to Parent Company Condensed Financial Statements.

NOTE A — ACCOUNTING POLICIES

In the Parent Company Condensed Financial Statements, NACCO's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition.

NACCO's share of net income of unconsolidated subsidiaries is included in net income using the equity method.

Parent Company financial statements should be read in conjunction with the Company's consolidated financial statements.

NOTE B — LONG-TERM OBLIGATIONS AND GUARANTEES

It is NACCO's policy not to guarantee the debt of NACoal.

NOTE C — UNRESTRICTED CASH

The amount of unrestricted cash available to NACCO, included in Investment in subsidiaries, was $ 1.2 million at December 31, 2021 and was in addition to the $ 83.1 million of cash included in the Parent Company Condensed Balance Sheet at December 31, 2021.

The following table provides the future net cash flows relating to proved oil and gas reserves based on the standardized measure of discounted cash flows as of December 31, 2021 :

Gross Amounts Statutory tax rate Net Amounts

Future cash inflows $ 71,400

Future production costs 14,664

Future net cash flows before income tax expense 56,736 21 % 44,821

10% discount to reflect timing of cash flows ( 19,897 ) 21 % ( 15,719 )

Standardized measure of discounted cash flows $ 36,839 21 % $ 29,102

The following summarizes the principal sources of change in the standardized measure of discounted future net cash flows during 2022:

Gross amounts

December 31, 2021 $ 36,839

Purchases 6,236

Extensions and discoveries 54,795

Revisions of previous estimates (3)

December 31, 2022 $ 116,526

(3) Revisions of previous estimates include technical revisions due to changes in commodity prices, historical and projected performance and other factors.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures