UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
 
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 2014
or
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
 
34-1505819
(I.R.S. Employer Identification No.)
 
 
 
5875 Landerbrook Drive, Suite 220, Cleveland, Ohio
(Address of principal executive offices)
 
44124-4069
(Zip Code)
Registrant's telephone number, including area code: (440) 229-5151

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Class A Common Stock, Par Value $1.00 Per Share
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1.00 Per Share
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
     YES  ¨      NO   þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
     YES  ¨      NO   þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
      YES   þ      NO  £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
      YES   þ      NO  £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ¨
Accelerated filer   þ  
Non-accelerated filer  ¨
(Do not check if a smaller reporting company)
Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
     YES  ¨      NO   þ
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of June 30, 2014 (the last business day of the registrant's most recently completed second fiscal quarter): $255,895,939
Number of shares of Class A Common Stock outstanding at February 27, 2015 : 5,610,926
Number of shares of Class B Common Stock outstanding at February 27, 2015 : 1,572,847
DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Proxy Statement for its 2015 annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.

 
 
 
 
 

1


NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I
Item 1. BUSINESS
General
NACCO Industries, Inc. (“NACCO” or the “Company”) is a holding company with the following principal businesses: mining, small appliances and specialty retail.
(a) North American Coal. The Company’s wholly owned subsidiary, The North American Coal Corporation and its affiliated companies (collectively, “NACoal”), mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies.
(b) Hamilton Beach Brands. The Company’s wholly owned subsidiary, Hamilton Beach Brands, Inc. (“HBB”), is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels .
(c) Kitchen Collection. The Company’s wholly owned subsidiary, The Kitchen Collection, LLC (“KC”), is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States. 
Additional information relating to financial and operating data on a segment basis (including NACCO and Other) and by geographic region is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this Form 10-K and in Note 17 to the Consolidated Financial Statements contained in this Form 10-K.
NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a holding company structure for a predecessor corporation organized in 1913. As of December 31, 2014 , the Company and its subsidiaries had approximately 4,000 employees, including approximately 1,350 employees at the Company’s unconsolidated mines.
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, www.nacco.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
Significant Events

During the fourth quarter of 2014, NACoal determined that indicators of impairment existed at its Reed Minerals mining operations and, as a result, reviewed Reed Minerals' long-lived assets for impairment. NACoal recorded a non-cash, asset impairment charge of $105.1 million in 2014 for Reed Minerals' long-lived asset group.

During 2014, NACoal recognized a gain of $3.5 million from the sale of assets to Mississippi Power Company and an unrelated gain of $2.2 million from the sale of land.

During 2014, HBB completed the acquisition of Weston Products, LLC, which HBB refers to as Weston Brands, in exchange for cash consideration of $25.4 million , of which $25.0 million was paid at closing. As a result of the 2014 Weston Brands acquisition, HBB now markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston ® brand as well as several private label brands. The results of Weston Brands operations have been included in the Company's Consolidated Financial Statements since December 16, 2014.

During 2013, HBB entered the "only-the-best" market through a licensing agreement with Jamba Juice Company. HBB will begin selling Jamba ® branded products in 2015. Also during 2013, HBB entered into a licensing agreement with Sub-Zero Group, Inc. and will begin selling Wolf Gourmet® branded counter top appliances and kitchen tools in 2015.

In 2013, NACoal concluded during its annual assessment for impairment of goodwill that the goodwill within the Reed Minerals reporting unit was fully impaired and, as a result, recorded a $4.0 million non-cash, goodwill impairment charge during the fourth quarter.

During 2013, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees, including those for certain unconsolidated mines' employees and cost of living adjustments ("COLAs") for other employees, effective as of the close of business on December 31, 2013. As a result of this amendment, the Company remeasured the Combined Plan and recorded a $1.7 million pre-tax curtailment gain during the third quarter of 2013.


1


On September 28, 2012, the Company spun-off Hyster-Yale Materials Handling, Inc. ("Hyster-Yale"), a former subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock or Class B common stock owned. In accordance with the applicable authoritative accounting guidance, the Company accounted for the spin-off based on the carrying value of Hyster-Yale.

On August 31, 2012, NACoal acquired Reed Minerals, which is based in Jasper, Alabama and is involved in the mining of steam and metallurgical coal. The results of Reed Minerals operations have been included in the Company's Consolidated Financial Statements since August 31, 2012.

During 2012, NACoal recognized a gain of $3.5 million from the sale of land and a $3.3 million gain for the sale of a dragline.

As of December 31, 2014 , NACCO has repurchased 680,013 shares for an aggregate purchase price of $36.0 million , including $35.1 million of stock purchased during 2014, as part of the stock repurchase program the Company announced in November 2013, which permits the repurchase of up to $60 million of the Company's outstanding Class A common stock. Under a previous stock repurchase program which ran from November 2011 to November 2013, the Company repurchased approximately 624,000 shares of Class A common stock for an aggregate purchase price of $35.6 million .

A. North American Coal
General
NACoal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. Coal is surface mined from NACoal's developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama. Total coal reserves approximate 2.0 billion tons (including the unconsolidated mining operations) with approximately 1.1 billion tons committed to customers pursuant to long-term contracts. NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Reed Minerals, Inc. ("Reed Minerals"). NACoal also provides dragline mining services for independently owned limerock quarries in Florida. NACoal has the following wholly owned unconsolidated subsidiaries: The Coteau Properties Company (“Coteau”), The Falkirk Mining Company (“Falkirk”), The Sabine Mining Company (“Sabine”), Demery Resources Company, LLC (“Demery”), Caddo Creek Resources Company, LLC (“Caddo Creek”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Camino Real Fuels, LLC (“Camino Real”), Liberty Fuels Company, LLC (“Liberty”) and NoDak Energy Services, LLC ("NoDak").

The unconsolidated subsidiaries, with the exception of NoDak, were formed to develop, construct and operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. Coteau, Falkirk, Sabine, Liberty and Coyote supply lignite coal for power generation. Demery and Caddo Creek supply lignite coal for the production of activated carbon. Camino Real supplies sub- bituminous coal for power generation. NoDak operates and maintains a coal processing facility.

Coteau, Falkirk and Sabine were developed between 1974 and 1981. Demery commenced delivering coal to its customer in 2012 and full production levels are expected to be reached in 2016. Liberty commenced production in 2013 but did not deliver any coal in 2014. Production levels are expected to increase gradually beginning in 2015 to full production of approximately 4.3 million tons of coal annually beginning in 2020. Construction of the Kemper County Energy Facility adjacent to Liberty is still ongoing, which may affect the pace of the increase in deliveries. Caddo Creek commenced delivering coal in late 2014. Camino Real expects initial deliveries in the second half of 2015, and expects to mine approximately 2.5 million to 3.0 million tons of coal annually when at full production. Coyote Creek received its mining permit in October 2014 and is developing a mine in Mercer County, North Dakota, from which it expects to deliver approximately 2.5 million tons of coal annually beginning in mid-2016.

The contracts with the customers of the unconsolidated subsidiaries provide for reimbursement to the company at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee.
At December 31, 2014 , NACoal's operating mines consisted both of mines where the reserves were acquired (whether in fee or through leases) and developed by NACoal, as well as mines where reserves are owned or leased by the customers of the mines and developed by NACoal. It is currently contemplated that the reported reserves will be mined within the term of the majority of the leases for each of the mines. In the future, if any of the leases are projected to expire before mining operations can commence, it is currently expected that each such lease would be amended to extend the term or new leases would be negotiated. NACoal expects coal mined pursuant to these leases will be available to meet production requirements.

2


The majority of NACoal's revenue is generated from its consolidated mining operations and dragline mining services. MLMC's customer, Choctaw Generation Limited Partnership until February 28, 2013 and KMRC RH, LLC subsequent to February 28, 2013, accounted for approximately 39% , 42% and 56% of NACoal's revenues for the years ended December 31, 2014 , 2013 and 2012 , respectively. Reed Minerals' largest customer, Alabama Coal Cooperative ("ACC"), accounted for approximately 27% of NACoal's revenues for the years ended December 31, 2014 and 2013 . The results of Reed Minerals operations have been included in the Company's consolidated financial statements since August 31, 2012.

North American Coal Corporation India Private Limited (“NACC India”) was formed to provide technical business advisory services to the third-party owner of a coal mine in India.  During 2014, NACC India's customer defaulted on its contractual payment obligations and, as a result of this default, NACC India has terminated its contract with the customer and is pursuing contractual remedies.
Sales, Marketing and Operations
The principal coal customers of NACoal are electric utilities, an independent power provider, a coal cooperative and a synfuels plant. Reed Minerals also sells coal to coke processing plants, cement plants and coal brokers in Alabama. The distribution of coal sales, including sales from the unconsolidated mines, in the last five years has been as follows:
 
Distribution
 
Synfuels Plant
 
Other
2014
20
%
 
80
%
2013
19
%
 
81
%
2012
21
%
 
79
%
2011
22
%
 
78
%
2010
18
%
 
82
%
The total coal severed by mine (in millions of tons) for the three years ended December 31 and the weighted average prices per ton delivered for the three years ended December 31 are as follows:
 
2014
 
2013
 
2012
Unconsolidated Mines
 
 
 
 
 
Freedom — The Coteau Properties Company
14.4

 
13.8

 
13.0

Falkirk — The Falkirk Mining Company
8.0

 
7.7

 
7.9

South Hallsville No. 1  The Sabine Mining Company
4.4

 
3.9

 
4.2

Other
1.0

 
0.3

 
0.1

Consolidated Mines
 
 
 
 
 
Red Hills — Mississippi Lignite Mining Company
2.9

 
3.3

 
3.0

Reed Minerals  (1)
0.9

 
0.9

 
0.3

Total tons severed
31.6

 
29.9

 
28.5

Price per ton delivered
$
23.75

 
$
24.32

 
$
22.60


(1) The results of Reed Minerals operations have been included in the Company's consolidated financial statements since August 31, 2012.
The contracts under which certain of the unconsolidated mines operate provide that, under certain conditions of default, the customer(s) involved may elect to acquire the assets (subject to the liabilities) or the capital stock of the subsidiary for an amount effectively equal to book value. NACoal does not know of any conditions of default that currently exist. In one case, the customer may elect to acquire the stock of the subsidiary upon a specified notice period without regard to default, in exchange for certain payments on coal mined thereafter. NACoal does not know of any current intention of any customer to acquire the stock of an NACoal subsidiary or terminate a contract for convenience. In addition, the contracts under which certain of the unconsolidated mines operate provide that, under certain conditions of default or termination by the customer, the customers have the right to acquire certain or all of the assets of the mines under the same terms as a third-party purchaser.

3


The location, mine type, reserve data, coal quality characteristics, sales tonnage and contract expiration date for the mines operated by NACoal were as follows:

COAL MINING OPERATIONS ON AN “AS RECEIVED” BASIS
 
 
 
 
2014
 
2013
 
 
 
 
Proven and Probable Reserves (a)(b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Committed
Under
Contract
 
Uncommitted
 
Total
 
Tons
Delivered
(Millions)
 
Owned
Reserves
(%)
 
Leased
Reserves
(%)
 
Total
Committed
and
Uncommitted
(Millions of
Tons)
 
Tons
Delivered
(Millions)
 
Contract
Expires
Mine/Reserve
 
Type of Mine
 
(Millions of Tons)
 
 
 
 
 
 
Unconsolidated Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freedom Mine (c)
 
Surface Lignite
 
495.7

 

 
495.7

 
14.3

 
2
%
 
98
%
 
512.4

 
13.8

 
2022
(d)
Falkirk Mine (c)
 
Surface Lignite
 
399.1

 

 
399.1

 
7.8

 
1
%
 
99
%
 
407.7

 
7.7

 
2045
 
South Hallsville No. 1 Mine (c)
 
Surface Lignite
 
(e)

 
(e)

 
(e)

 
4.5

 
(e)

 
(e)

 
(e)

 
4.3

 
2035
 
Five Forks Mine (c)
 
Surface Lignite
 
(e)

 
(e)

 
(e)

 
0.1

 
(e)

 
(e)

 
(e)

 
0.1

 
2030
 
Marshall Mine (c)
 
Surface Lignite
 
(e)

 
(e)

 
(e)

 
(f)

 
(e)

 
(e)

 
(e)

 
(f)

 
2043
 
Eagle Pass Mine (c)
 
Surface
Sub-bituminous
 
(e)

 
(e)

 
(e)

 
(g)

 
(e)

 
(e)

 
(e)

 
(g)

 
2018
 
Liberty Mine (c)
 
Surface Lignite
 
(e)

 
(e)

 
(e)

 
(h)

 
(e)

 
(e)

 
(e)

 
(h)

 
2055
(i)
Coyote Creek Mine (c)
 
Surface Lignite
 
78.9

 

 
78.9

 
(j)

 
0
%
 
100
%
 
55.1

 
(j)

 
2040
 
Consolidated Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reed Minerals Mines
 
Surface Bituminous
 
7.5

 
57.1

 
64.6

 
0.9

 
27
%
 
73
%
 
52.6

 
0.8

 
(k)
 
Red Hills Mine
 
Surface Lignite
 
120.6

 
115.9

 
236.5

 
2.6

 
32
%
 
68
%
 
240.4

 
3.2

 
2032
 
Total Developed
 
 
 
1,101.8

 
173.0

 
1,274.8

 
30.2

 
 
 
 
 
1,268.2

 
29.9

 
 
 
Undeveloped Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North Dakota
 
 
 

 
287.3

 
287.3

 

 
0
%
 
100
%
 
474.2

 

 
 
 
Texas
 
 
 

 
225.6

 
225.6

 

 
54
%
 
46
%
 
225.6

 

 
 
 
Eastern (l)
 
 
 

 
28.7

 
28.7

 

 
100
%
 
0
%
 
28.7

 

 
 
 
Mississippi
 
 
 

 
187.8

 
187.8

 

 
0
%
 
100
%
 
187.8

 

 
 
 
Total Undeveloped
 
 
 

 
729.4

 
729.4

 

 
 
 
 
 
916.3

 

 
 
 
Total Developed/Undeveloped
 
 
 
1,101.8

 
902.4

 
2,004.2

 
 
 
 
 
 
 
2,184.5

 
 
 
 
 


4


 
 
 
 
 
 
 
 
 
 
Average Coal Quality (As received)
Mine/Reserve
 
Type of Mine
 
Coal Formation or
Coal Seam(s)
 
Average Seam
Thickness (feet)
 
Average
Depth (feet)
 
BTUs/lb
 
Sulfur (%)
 
Ash (%)
 
Moisture (%)
Unconsolidated Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Freedom Mine (c)
 
Surface Lignite
 
Beulah-Zap Seam
 
18

 
130

 
6,700

 
0.90
%
 
9
%
 
36
%
Falkirk Mine (c)
 
Surface Lignite
 
Hagel A&B, Tavis
Creek Seams
 
8

 
90

 
6,200

 
0.62
%
 
11
%
 
38
%
South Hallsville No. 1 Mine (c)
 
Surface Lignite
 
(e)
 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

Five Forks Mine (c)
 
Surface Lignite
 
(e)
 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

Marshall Mine (c)
 
Surface Lignite
 
(e)
 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

Eagle Pass Mine (c)
 
Surface
Sub-bituminous
 
(e)
 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

Liberty Mine (c)
 
Surface Lignite
 
(e)
 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

 
(e)

Coyote Creek Mine (c)
 
Surface Lignite
 
Beulah-Zap Seam
 
10

 
95

 
6,900

 
0.98
%
 
8
%
 
36
%
Consolidated Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reed Minerals Mines
 
Surface Bituminous
 
Black Creek, C1, C2, C3, New Castle, Mary Lee, Jefferson, American, Nickel Plate, Pratt Seams
 
1.75

 
178

 
13,226

 
2.00
%
 
10
%
 
4
%
Red Hills Mine
 
Surface Lignite
 
C, D, E, F, G, H Seams
 
3.6

 
150

 
5,200

 
0.60
%
 
14
%
 
43
%
Undeveloped Mines
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
North Dakota
 

 
Fort Union Formation
 
13

 
130

 
6,500

 
0.8
%
 
8
%
 
38
%
Texas
 

 
Wilcox Formation
 
5

 
120

 
6,800

 
1.0
%
 
16
%
 
30
%
Eastern (l)
 

 
Freeport & Kittanning Seams
 
4

 
400

 
12,070

 
3.3
%
 
12
%
 
3
%
Mississippi
 

 
Wilcox Formation
 
5

 
130

 
5,200

 
0.6
%
 
13
%
 
44
%


(a)
Committed and uncommitted tons represent in-place estimates. The projected extraction loss is approximately 10% of the proven and probable reserves, except with respect to the Eastern Undeveloped Mines, in which case the projected extraction loss is approximately 30% of the proven and probable reserves.
(b)
NACoal’s reserve estimates are generally based on the entire drill hole database for each reserve, which was used to develop a geologic computer model using a 200 foot grid and inverse distance to the second power as an interpolator for all of NACoal's reserves, except for the reserves of Reed Minerals where a 50 foot grid was used. As such, all reserves are considered proven (measured) within NACoal’s reserve estimate. None of NACoal’s coal reserves have been reviewed by independent experts.
(c)
The contracts for these mines require the customer to cover the cost of the ongoing replacement and upkeep of the plant and equipment of the mine.
(d)
Although the term of the existing coal sales agreement terminates in 2022, the term may be extended for three additional periods of five years, or until 2037, at the option of Coteau.
(e)
The reserves are owned and controlled by the customer and, therefore, have not been listed in the table.
(f)
The contract for development of this mine was executed during 2009, and less than 0.1 million tons were sold in 2014. No sales occurred during 2013 .
(g)
The contract for development of this mine was executed during 2009, and no sales occurred during 2014 or 2013 .
(h)
The contract for development of this mine was executed during 2010, and no sales occurred during 2014 or 2013 .
(i)
The term of this contract is 40 years, commencing on the date of commercial deliveries, which is anticipated to occur during 2015.
(j)
The contract for development of this mine was executed during 2012, and no sales occurred during 2014 or 2013 .
(k)
The majority of the coal produced is sold to a single customer under contract until 2020. The remaining coal generally is sold to customers under one and two year contracts.
(l)
The proven and probable reserves included in the table do not include coal that is leased to others. NACoal had 105.2 million tons and 78.7 million tons in 2014 and 2013 , respectively, of Eastern Undeveloped Mines with leased coal committed under contract.


5



6


Unconsolidated Mines
Freedom Mine — The Coteau Properties Company
The Freedom Mine, operated by Coteau, is located approximately 90 miles northwest of Bismarck, North Dakota. The main entrance to the Freedom Mine is accessed by means of a paved road and is located on County Road 15. Coteau holds 285 leases granting the right to mine approximately 35,451 acres of coal interests and the right to utilize approximately 24,541 acres of surface interests. In addition, Coteau owns in fee 30,388 acres of surface interests and 4,265 acres of coal interests. Substantially all of the leases held by Coteau were acquired in the early 1970s and have been replaced with new leases or have lease terms for a period sufficient to meet Coteau’s contractual production requirements.
The Freedom Mine generally produces between 13 million and 15 million tons of lignite coal annually. The mine started delivering coal in 1983. All production from the mine is sold to Dakota Coal Company, a wholly owned subsidiary of Basin Electric Power Cooperative. Dakota Coal Company then sells the coal to Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station, all of which are affiliates of Basin Electric Power Cooperative.
The reserves are located in Mercer County, North Dakota, starting approximately two miles north of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 100 miles northwest of the Freedom Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand, silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Falkirk Mine — The Falkirk Mining Company
The Falkirk Mine, operated by Falkirk, is located approximately 50 miles north of Bismarck, North Dakota on a paved access road off U.S. Highway 83. Falkirk holds 294 leases granting the right to mine approximately 46,421 acres of coal interests and the right to utilize approximately 26,985 acres of surface interests. In addition, Falkirk owns in fee 38,326 acres of surface interests and 1,270 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the early 1970s with initial terms that have been further extended by the continuation of mining operations.
The Falkirk Mine generally produces between 7 million and 9 million tons of lignite coal annually primarily for the Coal Creek Station, an electric power generating station owned by Great River Energy. Commencing in the second half of 2014, Falkirk began delivering coal to Spiritwood Station, another electric power generating station owned by Great River Energy. Annual deliveries to Spiritwood Station are expected to average approximately 500,000 tons. The mine started delivering coal in 1978.
The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of the town of Washburn, North Dakota to four miles north of the town of Underwood, North Dakota. Structurally, the area is located on an intercratonic basin containing a thick sequence of sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel Butte Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor Formation. The Sentinel Butte Formation conformably overlies the Bullion Creek Formation. The general stratigraphic sequence in the upland portions of the reserve area (Sentinel Butte Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay, lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a repeating sequence of silty to sand clays with generally thin lignite beds.
South Hallsville No. 1 Mine — The Sabine Mining Company
The South Hallsville No. 1 Mine, operated by Sabine, is located approximately 150 miles east of Dallas, Texas on FM 968. The entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or option to acquire any of the reserves at the South Hallsville No. 1 Mine. Southwestern Electric Power Company controls all of the reserves within the South Hallsville No. 1 Mine.
The South Hallsville No. 1 Mine has two active pits generally producing between 3 million and 5 million tons of lignite coal annually based upon Southwestern Electric Power Company’s demand for its Henry W. Pirkey Plant. The mine started delivering coal in 1985.
Five Forks Mine — Demery Resources Company, LLC
The Five Forks Mine, operated by Demery, is located approximately three miles north of Creston, Louisiana on State Highway 153. Access to the Five Forks Mine is by means of a gravel road. Demery commenced delivering coal to its customer in 2012 and is expected to reach full production levels in 2016. Demery has no title, claim, lease or option to acquire any of the reserves at the Five Forks Mine. Demery's customer, Five Forks Mining, LLC, controls all of the reserves within the Five Forks Mine.

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Marshall Mine — Caddo Creek Resources Company, LLC
The Marshall Mine, operated by Caddo Creek, commenced production in late 2014 and is located approximately ten miles south of Marshall, Texas on FM-1186. Access to the Marshall Mine will be by means of a paved road. Caddo Creek has no title, claim, lease or option to acquire any of the reserves at the Marshall Mine. Marshall Mine, LLC controls all of the reserves within the Marshall Mine.
Eagle Pass Mine — Camino Real Fuels, LLC

The Eagle Pass Mine, operated by Camino Real, is in the development stage and is located approximately six miles north of Eagle Pass, Texas on State Highway 1588. Access to the Eagle Pass Mine is by means of a paved road. Camino Real has no title, claim, lease or option to acquire any of the reserves at the Eagle Pass Mine. Dos Republicas Coal Partnership controls all of the reserves within the Eagle Pass Mine.
Liberty Mine — Liberty Fuels Company, LLC

The Liberty Mine, operated by Liberty, is located approximately 20 miles north of Meridian, Mississippi off State Highway 493. Liberty commenced production in 2013 and is expected to increase production levels gradually with expected full production levels reached in 2020. Liberty has no title, claim, lease or option to acquire any of the reserves at the Liberty Mine. Mississippi Power Company controls all of the reserves within the Liberty Mine.
Coyote Creek Mine - Coyote Creek Mining Company, LLC

The Coyote Creek Mine, to be operated by Coyote Creek, is in the development stage and is located approximately 70 miles northwest of Bismarck, North Dakota. The main entrance to the Coyote Creek Mine is accessed by means of a four-mile graveled road extending west off of State Highway 49. Coyote Creek holds a sublease to 73 leases granting the right to mine approximately 5,777 acres of coal interests and the right to utilize approximately 13,408 acres of surface interests. In addition, Coyote Creek Mine owns in fee 160 acres of surface interests and has four easements to conduct coal mining operations on approximately 345 acres. Substantially all of these leases were acquired during the years 2010 through 2012 and have lease terms for a period sufficient to meet Coyote Creek's contractual production requirements.

In May 2016, the Coyote Creek Mine is expected to begin coal deliveries to the Coyote Station owned by Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Company and Northwestern Corporation.

The reserves are located in Mercer County, North Dakota, starting approximately six miles southwest of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 110 miles northwest of the Coyote Creek Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Consolidated Mines
Reed Minerals Mines
Reed Minerals' operating mines are located about 12 miles east and southeast of the city of Jasper in Walker County, Alabama, about 20 miles southeast of the city of Jasper in Jefferson County, Alabama, and about 15 miles northwest of the City of Jasper in Winston County, Alabama. The main entrances to the Walker County, Alabama operating mines are accessed by means of a half-mile graveled road extending south off Sipsey Road and a half-mile graveled road extending west off Cordova Gorgas Road. The main entrance to the Jefferson County, Alabama operating mine is accessed by means of a three-mile paved section of Porter Road extending south off Snowville - Brent Road. The main entrance to the Winston County, Alabama operating mine is accessed by means of a quarter-mile gravel road extending west off County Road 21. The reserves within the Reed Minerals operating mines are controlled by Reed Minerals. The Reed Minerals operating mines produce about 900,000 tons per year, which are sold to several customers in Alabama.
Reed Minerals owns in fee approximately 5,339 acres of coal interests and approximately 2,397 acres of surface interests. Reed Minerals holds leases granting the right to mine approximately 14,438 acres of coal interests and the right to utilize approximately

8


15,057 acres of surface interests. The majority of the leases held by Reed Minerals were originally acquired between 2000 and 2010 with terms that can be extended by the continuation of mining operations.
Structurally, the reserves for the Reed Minerals operating mines are located within the Warrior Coal Basin. The strata that underlies and outcrops in this region is of the Pottsville Formation of the Pennsylvanian Age. The Warrior Basin is the southernmost of a series of Pennsylvanian basins of the Appalachian Plateau. The Pottsville Formation in this area consists of thin to thick bedded sandstones, siltstones, shales, clays and coal seams. This sequence of clastic sediments is representative of a deltaic depositional environment. Structurally, the Warrior Basin is formed by a large gentle syncline that extends from north-central Mississippi in the west to north-central Alabama in the east. The syncline is tilted southwestward with a regional dip of 30 to 200 feet per mile. Toward the interior of the Warrior Basin, the regional southwest dip of Pottsville strata is modified by a series of three synclines and two anticlines. Of these, the major structural areas are the Warrior and Coalburg synclines, and the Sequatchie anticline. The fold axes are parallel to the Appalachian system in a northeast-southwest direction and plunge to the southwest with the regional dip.
Red Hills Mine — Mississippi Lignite Mining Company
The Red Hills Mine, operated by MLMC, is located approximately 120 miles northeast of Jackson, Mississippi. The entrance to the mine is by means of a paved road located approximately one mile west of Highway 9. MLMC owns in fee approximately 4,387 acres of surface interest and 2,198 acres of coal interests. MLMC holds leases granting the right to mine approximately 7,588 acres of coal interests and the right to utilize approximately 6,535 acres of surface interests. MLMC holds subleases under which it has the right to mine approximately 308 acres of coal interests. The majority of the leases held by MLMC were originally acquired during the mid-1970s to the early 1980s with terms extending 50 years, many of which can be further extended by the continuation of mining operations.
The Red Hills Mine generally produces approximately 3 million to 4 million tons of lignite coal annually for use at the Red Hills Power Plant. The mine started delivering coal in 2000.
The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that outcrops/subcrops along the margin of the Mississippi Embayment. The potentially exploitable tertiary lignites in Mississippi are found in the Wilcox Group. The outcropping Wilcox is composed predominately of non-marine sediments deposited on a broad flat plain.
Florida Dragline Operations — The North American Coal Corporation
NACoal’s Florida Dragline Operations operate draglines to mine limerock at the following quarries in Florida pursuant to mining services agreements with the quarry owners:
Quarry Name
Location
Quarry Owner
Year NACoal Started Dragline Operations
White Rock Quarry — North
Miami
WRQ
1995
White Rock Quarry — South
Miami
WRQ
2005
Krome Quarry
Miami
Cemex
2003
Alico Quarry
Ft. Myers
Cemex
2004
FEC Quarry
Miami
Cemex
2005
SCL Quarry
Miami
Cemex
2006

Vecellio & Grogan, Inc., d/b/a White Rock Quarries (“WRQ”) and Cemex S.A.B. de C.V. (“Cemex”) control all of the limerock reserves within their respective quarries. WRQ and Cemex perform drilling programs occasionally for the purpose of redefining the bottom of the limerock bed.
Access to the White Rock Quarry is by means of a paved road from 122nd Avenue and access to the Krome Quarry is by means of a paved road from Krome Avenue. Access to the FEC Quarry is by means of a paved road from NW 118th Avenue and access to the Alico Quarry is by means of a paved road from Alico Road. Access to the SCL Quarry is by means of a paved road from NW 137th Avenue and access to the Card Sound Quarry is by means of a paved road from SW 408th Street. Florida Dragline Operations have no title, claim, lease or option to acquire any of the reserves at the White Rock Quarry (North and South), the FEC Quarry, the Krome Quarry, the SCL Quarry or the Alico Quarry.

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North American Coal Royalty Company
No operating mines currently exist on the undeveloped reserves in North Dakota, Texas and Mississippi. North American Coal Royalty Company does receive certain royalty payments from third parties for production or advance royalty payments for oil and gas, as well as for coal reserves located in Alabama, Ohio, Pennsylvania, North Dakota, Louisiana and Texas.
General Information about the Mines
Leases . The leases held by Coteau, Falkirk, Coyote Creek and MLMC have a variety of continuation provisions, but generally permit the leases to be continued beyond their fixed terms. Under the terms of the leases held by these subsidiaries, each respective subsidiary expects that coal mined pursuant to its leases will be available to meet its production requirements. Reed Minerals holds the mining rights to the reserves within its mines through fee ownership, and leases and licenses from the coal and surface owners.
Previous Operators . There were no previous operators of the Freedom Mine, Falkirk Mine, South Hallsville No. 1 Mine, Five Forks Mine, Marshall Mine, Eagle Pass Mine, Liberty Mine, Coyote Creek Mine or Red Hills Mine. Reed Minerals operates mines adjacent to and under which third-party surface and underground mine operators may have operated in the past.
Exploration and Development . The Freedom Mine, Falkirk Mine, South Hallsville No. 1 Mine, Red Hills Mine and the Reed Minerals operating mines are well past the exploration stage and are in production. Additional pit development is under way at each mine. Drilling programs are routinely conducted for the purpose of refining guidance related to ongoing operations. For example, at the Red Hills Mine, the lignite coal reserve has been defined by a drilling program that is designed to provide 500-foot spaced drill holes for areas anticipated to be mined within six years of the current pit. Drilling beyond the six-year horizon ranges from 1,000 to 2,000-foot centers. Drilling is conducted every other year to stay current with the advance of mining operations. Geological evaluation is in process at all locations.
Facilities and Equipment . The facilities and equipment for each of the mines are maintained to allow for safe and efficient operation. The equipment is well maintained, in good physical condition and is either updated or replaced periodically with newer models or upgrades available to keep up with modern technology. As equipment wears out, the mines evaluate what
replacement option will be the most cost-efficient, including the evaluation of both new and used equipment, and proceed with that replacement. The majority of electrical power for the draglines, shovels, coal crushers, coal conveyors and facilities generally is provided by the power generation customer for the applicable mine. Electrical power for the Sabine facilities is provided by Upshur Rural Electric Co-op. Electrical power for the Sabine draglines is provided by the Pirkey Power Plant. Electrical power for a Reed Minerals dragline placed in service in 2014 is provided by Alabama Power Company ("APC"). The remainder of the equipment generally is powered by diesel or gasoline.


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The total cost of the property, plant and equipment, net of applicable accumulated amortization, depreciation and impairment as of December 31, 2014 is set forth in the chart below:
Mine
 
Total Historical Cost of Mine
Property, Plant and Equipment
(excluding Coal Land, Real Estate
and Construction in Progress), Net of
Applicable Accumulated
Amortization, Depreciation and Impairment
 
 
( in millions)
Unconsolidated Mining Operations
 
 
Freedom Mine — The Coteau Properties Company
 
$
150.6

Falkirk Mine — The Falkirk Mining Company
 
$
94.0

South Hallsville No. 1 Mine — The Sabine Mining Company
 
$
179.8

Five Forks Mine — Demery Resources Company, LLC
 
$

Marshall Mine — Caddo Creek Resources Company, LLC
 
$

Eagle Pass Mine — Camino Real Fuels, LLC
 
$

Liberty Mine — Liberty Fuels Company, LLC
 
$
19.5

Coyote Creek Mine — Coyote Creek Mining Company, LLC
 
$
50.3

Consolidated Mining Operations
 
 
Red Hills Mine — Mississippi Lignite Mining Company
 
$
44.5

Reed Minerals — Reed Minerals, Inc. and C&H Mining Company, Inc. (a)  
 
$
35.8

Florida Dragline Operations — The North American Coal Corporation
 
$
2.4

(a) Reflects a reduction in property, plant and equipment as a result of the Reed Minerals non-cash, long-lived asset impairment charge recorded during the fourth quarter of 2014. See Note 5 , Note 6 and Note 10 to the Consolidated Financial Statements for further discussion of the long-lived asset impairment charge.
Predominantly all of Demery, Caddo Creek, Camino Real and Liberty's machinery and equipment is owned by NACoal’s customers. A substantial portion of MLMC’s and Reed Minerals' machinery, trucks and equipment is rented under operating leases and one of Reed Minerals' draglines is under a capital lease. All other draglines were purchased used and have been or are expected to be updated with the latest technology.
Government Regulation
NACoal’s coal mining operations and dragline mining services are subject to various federal, state and local laws and regulations on matters such as employee health and safety, and certain environmental laws relating to, among others, the reclamation and restoration of properties after mining operations, air pollution, water pollution, the disposal of wastes and effects on groundwater. In addition, the electric power generation industry is subject to extensive regulation regarding the environmental impact of its power generation activities that could affect demand for coal from NACoal’s coal mining operations.
Numerous governmental permits and approvals are required for coal mining operations. NACoal or one of its subsidiaries holds or will hold the necessary permits at all of NACoal’s coal mining operations except Demery, Caddo Creek and Camino Real, where NACoal’s customers hold or will hold the permits, and Reed Minerals, where a coal reserve owner and a contract miner hold certain permits. The Company believes, based upon present information provided to it by these third-party mine permit holders, that these third parties have or will have all permits necessary for NACoal to operate Reed Minerals, Caddo Creek, Demery and Camino Real; however, the Company cannot be certain that these third parties will be able to obtain and/or maintain all such permits in the future.
At the coal mining operations where NACoal holds the permits, NACoal is required to prepare and present to federal, state or local governmental authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment and public and employee health and safety.
The limerock quarries where NACoal provides dragline mining services are owned and operated by NACoal’s customers.
Some laws, as discussed below, place many requirements on NACoal’s coal mining operations and the limerock quarries where NACoal provides dragline mining services. Federal and state regulations require regular monitoring of NACoal’s operations to ensure compliance.

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Mine Health and Safety Laws
The Federal Mine Safety and Health Act of 1977 imposes safety and health standards on all coal mining operations. Regulations are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations and other matters. The Federal Mine Safety and Health Administration enforces compliance with these federal laws and regulations.
Environmental Laws
NACoal’s coal mining operations are subject to various federal environmental laws, as amended, including:
the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”);
the Clean Air Act, including amendments to that act in 1990 (“CAA”);
the Clean Water Act of 1972 (the “Clean Water Act”);
the Resource Conservation and Recovery Act; and
the Comprehensive Environmental Response, Compensation and Liability Act.
In addition to these federal environmental laws, various states have enacted environmental laws that provide for higher levels of environmental compliance than similar federal laws. These state environmental laws require reporting, permitting and/or approval of many aspects of coal mining operations. Both federal and state inspectors regularly visit mines to enforce compliance. NACoal has ongoing training, compliance and permitting programs to ensure compliance with such environmental laws.
Surface Mining Control and Reclamation Act
SMCRA establishes mining, environmental protection and reclamation standards for all aspects of surface coal mining operations. Where state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the primary regulatory authority. All of the states where NACoal has active coal mining operations have achieved primary control of enforcement through federal authorization under SMCRA.
Coal mine operators must obtain SMCRA permits and permit renewals for coal mining operations from the applicable regulatory agency. These SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, protection of the hydrologic balance, surface drainage control, mine drainage and mine discharge control and treatment, and revegetation.
Although NACoal’s permits have stated expiration dates, SMCRA provides for a right of successive renewal. The cost of obtaining surface mining permits can vary widely depending on the quantity and type of information that must be provided to obtain the permits; however, the cost of obtaining a permit is usually between $1,000,000 and $5,000,000, and the cost of obtaining a permit renewal is usually between $15,000 and $100,000.
The Abandoned Mine Land Fund, which is part of SMCRA, imposes a fee on certain coal mining operations. The proceeds are used principally to reclaim mine lands closed prior to 1977. In addition, the Abandoned Mine Land Fund also makes transfers annually to the United Mine Workers of America Combined Benefit Fund (the “Fund”), which provides health care benefits to retired coal miners who are beneficiaries of the Fund. The fee was $0.09 per ton on lignite coal produced and $0.315 per ton on other surface-mined coal from prior to 2011 through September 30, 2012. As of October 1, 2012, the fee is currently $0.08 per ton on lignite coal produced and $0.28 per ton on other surface-mined coal.
SMCRA establishes operational, reclamation and closure standards for surface coal mines. The Company accrues for the costs of current mine disturbance and final mine closure, including the cost of treating mine water discharges, where necessary. These obligations are unfunded with the exception of the final mine closure costs for the Coyote Creek Mine, which will be funded throughout the production stage.
SMCRA stipulates compliance with many other major environmental programs, including the CAA and Clean Water Act. The U.S. Army Corps of Engineers regulates activities affecting navigable waters, and the U.S. Bureau of Alcohol, Tobacco and Firearms regulates the use of explosives for blasting. In addition, the U.S. Environmental Protection Agency (the “EPA”), the U.S. Army Corps of Engineers and the Federal Office of Surface Mining are engaged in a series of rulemakings and other administrative actions under the Clean Water Act and other statutes that are directed at reducing the impact of coal mining operations on water bodies. Currently, these initiatives are primarily with respect to mining operations in the Appalachian region, especially on mountaintops.
The Company does not believe there is any significant risk to NACoal’s ability to maintain its existing mining permits or its ability to acquire future mining permits for its mines.

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Clean Air Act

The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including sulfur dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA and the corresponding state laws that extensively regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations occur through CAA permitting requirements and/or emission control requirements relating to air
contaminants, especially particulate matter. Indirect impacts on coal mining operations occur through regulation of the air emissions of sulfur dioxide, nitrogen oxides, mercury, particulate matter and other compounds emitted by coal-fired power plants. The EPA has promulgated or proposed regulations that impose tighter emission restrictions in a number of areas, some of which are currently subject to litigation. The general effect of tighter restrictions could be to reduce demand for coal. Any reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business, financial condition and results of operations.
States are required to submit to the EPA revisions to their state implementation plans ("SIPs") that demonstrate the manner in which the states will attain national ambient air quality standards ("NAAQS") every time a NAAQS is issued or revised by the EPA. The EPA has adopted NAAQS for several pollutants, which it continues to periodically review for revisions. When the EPA adopts new, more stringent NAAQS for a pollutant, some states have to change their existing SIPs. If a state fails to revise its SIP and obtain EPA approval, the EPA may adopt regulations to effect the revision. Coal mining operations and coal-fired power plants that emit particulate matter or other specified material are, therefore, affected by changes in the SIPs. Through this process over the last few years, the EPA has reduced the NAAQS for particulate matter, ozone, and nitrogen oxides. NACoal’s coal mining operations and power generation customers may be directly affected when the revisions to the SIPs are made and incorporate new NAAQS for sulfur dioxide, nitrogen oxides, ozone and particulate matter. In response to a court remand of earlier rules to control the regional dispersion of sulfur dioxide and nitrogen oxides from coal-fired power plants and their impacts of downwind NAAQS areas, in mid-2011, the EPA finalized the Cross-State Air Pollution Rule ("CSAPR") to address interstate transport of pollutants. This affects states in the eastern half of the U.S. and Texas. This rule imposes additional emission restrictions on coal-fired power plants to attain ozone and fine particulate NAAQS. On August 21, 2012, the U.S. Court of Appeals stuck down the CSAPR rule, effectively eliminating the new additional emission restrictions. The EPA subsequently appealed to the U.S. Supreme Court, which overturned the lower court ruling on April 29, 2014. EPA began implementation of the rule January 1, 2015. Some questions regarding the rule remain unresolved and additional litigation is pending.
The CAA Acid Rain Control Provisions were promulgated as part of the CAA Amendments of 1990 in Title IV of the CAA (“Acid Rain Program”). The Acid Rain Program required reductions of sulfur dioxide emissions from coal-fired power plants. The Acid Rain Program is now a mature program, and the Company believes that any market impacts of the required controls have likely been factored into the coal market.
The EPA promulgated a regional haze program designed to protect and to improve visibility at and around Class I Areas, which are generally National Parks, National Wilderness Areas and International Parks. This program may restrict the construction of new coal-fired power plants, the operation of which may impair visibility at and around the Class I Areas. Additionally, the program requires certain existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxide and particulate matter. States were required to submit Regional Haze SIPs to the EPA by December 2007; however, many states did not meet that deadline.
Under the CAA, new and modified sources of air pollution must meet certain new source standards (the “New Source Review Program”). In the late 1990s, the EPA filed lawsuits against many coal-fired power plants in the eastern U.S.alleging that the owners performed non-routine maintenance, causing increased emissions that should have triggered the application of these new source standards. Some of these lawsuits have been settled with the owners agreeing to install additional emission control devices in their coal-fired power plants. The remaining litigation and the uncertainty around the New Source Review Program rules could adversely impact demand for coal. Regardless of the outcome of litigation on either rule, stricter controls on emissions of sulfur dioxide, nitrogen oxide and mercury are likely. Any such controls may have an adverse impact on the demand for coal, which may have an adverse effect on the Company’s business, financial condition or results of operations.
Under the CAA, the EPA also adopts national emission standards for hazardous air pollutants. In December 2011, the EPA adopted a final rule called the Mercury and Air Toxics Standard ("MATS"), which applies to new and existing coal-fired and oil-fired units. This rule requires mercury emission reductions, but also requires reductions in emissions of acid gases during fuel combustion, and additional reductions in fine particulates, which are being regulated as a surrogate for certain metals. Through a series of legal challenges this rule is now under review by the U.S. Supreme Court. A ruling on its legality is expected during 2015.
The power plant that utilizes most of the thermal coal sold by Reed Minerals will be required to meet the MATS standards by the MATS effectiveness date of April 16, 2016. In January 2015, the owner of this power plant clarified its MATS compliance strategy, including more restrictive coal quality requirements than the MATS requirements and Reed Minerals previously

13


anticipated. Reed Minerals will be required to meet these new coal quality requirements for deliveries beginning October 1, 2015. Currently, not all of the coal at Reed Minerals meets the power plant owner's new coal quality requirements. Reed Minerals is working to develop coal blending and coal washing strategies to comply with the power plant owner's new coal quality requirements so that it can continue to supply its coal to this power plant. It is not clear at this point whether either strategy can be executed or executed in a way that will allow Reed Minerals to meet the new coal quality requirements profitably.
NACoal’s power generation customers must incur substantial costs to control emissions to meet all of the CAA requirements, including the new requirements under MATS and the EPA's regional haze program. These costs could raise the price of coal-generated electricity, making coal-fired power less competitive with other sources of electricity, thereby reducing demand for coal. In addition, NACoal's power generation customers may choose to close coal-fired generation units or to postpone or cancel plans to add new capacity, in light of not only these costs, but also of the limited time available for compliance with the requirements and the prospects of the imposition of additional future requirements on emissions from coal-fired units. If NACoal's customers cannot offset the cost to control certain regulated pollutant emissions by lowering the costs of delivery of its coal on an energy equivalent basis or if NACoal's customers elect to close coal-fired units, the Company’s business, financial condition and results of operations could be materially adversely affected.
Global climate change continues to attract considerable public and scientific attention and a considerable amount of legislative and regulatory attention in the United States. The U.S. Congress has considered climate change legislation that would reduce greenhouse gas (“GHG”) emissions, particularly from coal combustion by power plants. The EPA has proposed regulations to control GHG under the CAA without new legislation. Enactment of laws and passage of regulations regarding GHG emissions by the U.S. or some of its states, or other actions to limit carbon dioxide emissions, such as opposition by environmental groups to expansion or modification of coal-fired power plants, could result in electric generators switching from coal to other fuel sources.
The U.S. Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion of coal and other fuels. These proposals include emission taxes, emission reductions, including “cap-and-trade” programs, and mandates or incentives to generate electricity by using renewable resources, such as wind or solar power. Some states have established programs to reduce GHG emissions.
The EPA has begun to establish a GHG regulation program under the CAA by issuing a finding that the emission of six GHGs, including carbon dioxide and methane, may reasonably be anticipated to endanger public health and welfare. On June 26, 2012 the U.S. Court of Appeals - DC Circuit upheld this finding. Based on this finding, in 2012 the EPA published a New Source Performance Standard for greenhouse gases, emitted from future new power plants. This was withdrawn and subsequently reissued in January 2014. On June 2, 2014, the EPA proposed new regulations limiting carbon dioxide emissions from existing power plants. Under this proposal, nationwide carbon dioxide emissions would be reduced by 30% from 2005 levels by 2030, with a focus on emissions from coal-fired plants. The final rule is expected to be issued in mid-2015 with SIPs due one year after the rule is finalized, and emissions reductions scheduled to be phased in between 2020 and 2030. The proposed rule would give states a variety of approaches, including “cap-and-trade” programs, to meet proposed carbon dioxide emission standards. On June 18, 2014, the EPA also issued a proposed carbon dioxide emission regulation for reconstructed and modified power plants, which addresses carbon dioxide emissions limits for power plants subsequent to modification. Enactment of laws and passage of regulations regarding GHG emissions by the U.S. or some of its states or other actions to limit carbon dioxide emissions, such as opposition by environmental groups to expansion or modification of coal-fired power plants, could result in electric generators closing coal-fired power plants and/or switching from coal to other fuel sources and could have a materially adverse effect on NACoal’s business, financial condition and results of operations.
The U.S. has not implemented the 1992 Framework Convention on Global Climate Change (“Kyoto Protocol”), which became effective for many countries on February 16, 2005. The Kyoto Protocol was intended to limit or reduce emissions of GHGs. The U.S. has not ratified the emission targets of the Kyoto Protocol or any other GHG agreement. Because the first Protocol commitment period ended in 2012, an amendment to extend the Kyoto Protocol was adopted in Doha, Qatar on December 8, 2012. The U.S. is not a signatory to the amendment. Even though the U.S. has not accepted these international GHG limiting treaties or enacted domestic legislation to control GHGs, numerous lawsuits and regulatory actions have been undertaken by states and environmental groups to try to force controls on the emission of carbon dioxide; or to prevent the construction of new coal-fired power plants. On November 11, 2014, President Obama and Chinese President Xi Jinping jointly announced each nation's intentions to limit GHG emissions. These are non-binding statements of intent. It is expected that President Obama will make some commitments to the United Nations Framework Convention on Climate Change in Paris in late 2015. The implementation by the U.S. of an international agreement, the regulations promulgated to date by the EPA with respect to GHG emissions or the adoption of legislation to control GHG emissions, could have a materially adverse effect on the Company’s business, financial condition and results of operations.
NACoal has obtained all necessary permits under the CAA at all of its coal mining operations where it is responsible for permitting.

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Clean Water Act

The Clean Water Act affects coal mining operations by establishing in-stream water quality standards and treatment standards for waste water discharge. Permits requiring regular monitoring, reporting and performance standards govern the discharge of pollutants into water.

Federal and state regulations establish standards that prohibit the diminution of water quality. Waters discharged from coal mines are required to meet these standards. These federal and state requirements could require more costly water treatment and could materially adversely affect the Company’s business, financial condition and results of operations.

The Company believes NACoal has obtained all permits required under the Clean Water Act and corresponding state laws and is in compliance with such permits. In many instances, mining operations require securing Clean Water Act authorization or a permit from the U.S. Army Corps of Engineers for operations in waters of the United States.

Bellaire Corporation, a wholly owned non-operating subsidiary of the Company (“Bellaire”), is treating mine water drainage from coal refuse piles associated with two former underground coal mines in Ohio and one former underground coal mine in Pennsylvania, and is treating mine water from a former underground coal mine in Pennsylvania. Bellaire anticipates that it will need to continue these activities indefinitely and has accrued a liability of $17.6 million as of December 31, 2014 related to these treatment operations.

In connection with Bellaire's normal permit renewal with the Pennsylvania Department of Environmental Protection ("DEP"), Bellaire was notified during 2004 that in order to obtain renewal of the permit Bellaire would be required to establish a mine water treatment trust (the "Trust"). On October 1, 2010, Bellaire executed a Post-Mining Treatment Trust Consent Order and Agreement with the DEP which established the Trust to provide a financial assurance mechanism in order to assure the long-term treatment of post-mining discharges. Bellaire funded the Trust with $5.0 million. See Note 10 for further information on the Trust.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act ("RCRA") affects coal mining operations by establishing requirements for the treatment, storage and disposal of wastes, including hazardous wastes. Coal mine wastes, such as overburden and coal cleaning wastes, currently are exempted from hazardous waste management. In December 2014, the EPA finalized a rule specifying management standards for coal combustion residuals or coal ash ("CCRs") as a non-hazardous waste. These standards may raise the cost for CCR disposal at coal-fired power plants, making them less competitive, and may have an adverse impact on demand for coal.
The EPA proposed rule exempts CCRs disposed of at mine sites and reserves any regulation thereof to the Federal Office of Surface Mining (“OSM”). Currently, the OSM is developing rules to address the use of CCRs on coal mine sites. The outcome of these rulemakings, and any subsequent actions by EPA and OSM, could impact those NACoal operations that beneficially use CCRs. If NACoal were unable to beneficially use CCRs, its revenues for disposing of CCRs from its customers may decrease and its costs may increase due to the purchase of alternative materials for beneficial uses.
Comprehensive Environmental Response, Compensation and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws create liabilities for the investigation and remediation of releases of hazardous substances into the environment and for damages to natural resources. The Company must also comply with reporting requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
From time to time, the Company has been the subject of administrative proceedings, litigation and investigations relating to environmental matters.
The extent of the liability and the cost of complying with environmental laws cannot be predicted with certainty due to many factors, including the lack of specific information available with respect to many sites, the potential for new or changed laws and regulations, the development of new remediation technologies and the uncertainty regarding the timing of work with respect to particular sites. As a result, the Company may incur material liabilities or costs related to environmental matters in the future, and such environmental liabilities or costs could materially and adversely affect the Company’s results of operations and financial condition. In addition, there can be no assurance that changes in laws or regulations would not affect the manner in which NACoal is required to conduct its operations.

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Competition
The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric power and nuclear power. In addition, it competes with subsidized green energy projects, such as biofuels, wind and solar projects. Among the factors that affect competition are the price and availability of oil and natural gas, environmental considerations, the time and expenditures required to develop new energy sources, the cost of transportation, the cost of compliance with governmental regulations, the impact of federal and state energy policies and the current trend toward deregulation of energy markets. The ability of NACoal to market and develop its reserves will depend upon the interaction of these factors.
Based on industry information, NACoal believes it was one of the ten largest coal producers in the U.S. in 2014 based on total coal tons produced.
Employees
As of December 31, 2014 , NACoal had approximately 1,900 employees, including approximately 1,350 employees at the unconsolidated mines. None of NACoal’s employees are unionized. NACoal believes its current labor relations with employees are satisfactory.

B. Hamilton Beach Brands
General
HBB is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels . HBB’s products are marketed primarily to retail merchants and wholesale distributors.
Sales and Marketing
HBB designs, markets and distributes a wide range of small electric household appliances, including, but not limited to, blenders, can openers, coffeemakers, food processors, indoor electric grills, irons, mixers, slow cookers, toasters and toaster ovens. HBB also markets a line of air purifiers and odor eliminators. In addition, HBB designs, markets and distributes commercial products for restaurants, bars and hotels. HBB generally markets its “better” and “best” products under the Hamilton Beach ® brand and uses the Proctor Silex ® brand for the “good” and opening price point products. HBB has licensed the Melitta ® brand from Melitta, North America, Inc. for a unique line of coffee and hot beverage appliances. HBB has also licensed the Jamba ® brand from Jamba Juice Company and sells Jamba ® branded blenders and juicing products. HBB entered into a licensing agreement with Sub-Zero Group to create a line of counter top appliances and kitchen tools under the Wolf Gourmet ® brand. As a result of the 2014 Weston Brands acquisition, HBB now markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston ® brand as well as several private label brands. HBB supplies additional private label products on a limited basis throughout North America.
HBB markets its retail products primarily in North America, but also sells products in Latin America, Asia and other selected markets. HBB commercial products are sold worldwide. Retail sales in North America are generated predominantly by a network of inside sales employees to mass merchandisers, national department stores, variety store chains, drug store chains, specialty home retailers, distributors and other retail outlets. Wal-Mart accounted for approximately 33% , 31% and 31% of HBB’s revenues in 2014 , 2013 and 2012 , respectively. HBB’s five largest customers accounted for approximately 56% , 55% and 53% of HBB’s revenues for the years ended December 31, 2014 , 2013 and 2012 , respectively. The loss of or significant reduction in sales to any key customer could result in significant decreases in HBB’s revenue and profitability and its ability to sustain or grow its business.
Sales promotion activities are primarily focused on cooperative advertising. In addition, HBB promotes certain of its innovative products through the use of television, internet and print advertising. HBB also licenses certain of its trademarks to various licensees for use with microwaves, compact refrigerators, cookware, kitchen tools and gadgets and full-size household vacuums.
Because of the seasonal nature of the markets for small electric appliances, HBB’s management believes backlog is not a meaningful indicator of performance and is not a significant indicator of annual sales. Backlog represents customer orders, which may be cancelled at any time prior to shipment. Backlog for HBB was approximately $17.5 million and $12.5 million at December 31, 2014 and 2013 , respectively.
HBB’s warranty program to the consumer consists generally of a limited warranty lasting for varying periods of up to ten years for electric appliances, with the majority of products having a warranty of one year. Under its warranty program, HBB may repair or replace, at its option, those products returned under warranty.

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The market for small electric household appliances is highly seasonal in nature. Revenues and operating profit for HBB are traditionally greater in the second half of the year as sales of small electric appliances to retailers and consumers increase significantly with the fall holiday-selling season. Because of the seasonality of purchases of its products, HBB generally uses a substantial amount of cash or short-term debt to finance inventories and accounts receivable in anticipation of the fall holiday-selling season.
Patents, Trademarks, Copyrights and Licenses
HBB holds patents and trademarks registered in the U.S. and foreign countries for various products. HBB believes its business is not dependent upon any individual patent, copyright or license, but that the Hamilton Beach ® and Proctor Silex ® trademarks are material to its business.
Product Design and Development
HBB spent $9.6 million , $8.1 million and $7.5 million in 2014 , 2013 and 2012 , respectively, on product design and development activities.
Key Suppliers and Raw Material
HBB’s products are supplied to its specifications by third-party suppliers located primarily in China. HBB does not maintain long-term purchase contracts with suppliers and operates mainly on a purchase order basis. HBB generally negotiates purchase orders with its foreign suppliers in U.S. dollars. The weakening of the U.S. dollar against local currencies could result in certain non-U.S. manufacturers increasing the U.S. dollar prices for future product purchases.
During 2014 , HBB purchased 99% of its finished products from suppliers in China. HBB purchases its inventory from approximately 30 suppliers, two of which represented more than 10% of purchases during the year ended December 31, 2014 . HBB believes the loss of any one supplier would not have a long-term material adverse effect on its business because there are adequate supplier choices available that can meet HBB’s production and quality requirements. However, the loss of a supplier could, in the short term, adversely affect HBB’s business until alternative supply arrangements are secured.
The principal raw materials used by HBB’s third-party suppliers to manufacture its products are plastic, glass, steel, copper, aluminum and packaging materials. HBB believes adequate quantities of raw materials are available from various suppliers.
Competition
The small electric household appliance industry does not have onerous entry barriers. As a result, HBB competes with many small manufacturers and distributors of housewares products. Based on publicly available information about the industry, HBB believes it is one of the largest full-line distributors and marketers of small electric household appliances in North America based on key product categories.
Besides North America, HBB also competes to a lesser degree in Europe through its commercial product lines, and in South America and China. The competition in these geographic markets is more fragmented than in North America, and HBB is not yet a significant participant in these markets.
As retailers generally purchase a limited selection of small electric appliances, HBB competes with other suppliers for retail shelf space. HBB conducts consumer advertising for the Hamilton Beach ® brand and the Weston ® brand. HBB believes the principal areas of competition with respect to its products are product design and innovation, quality, price, product features, supply chain excellence, merchandising, promotion and warranty.
Government Regulation
HBB is subject to numerous federal and state health, safety and environmental regulations. HBB’s management believes the impact of expenditures to comply with such laws will not have a material adverse effect on HBB.
As a marketer and distributor of consumer products, HBB is subject to the Consumer Products Safety Act and the Federal Hazardous Substances Act, which empower the U.S. Consumer Product Safety Commission (“CPSC”) to seek to exclude products that are found to be unsafe or hazardous from the market. Under certain circumstances, the CPSC could require HBB to repair, replace or refund the purchase price of one or more of HBB’s products, or HBB may voluntarily do so.
Throughout the world, electrical appliances are subject to various mandatory and voluntary standards, including requirements in some jurisdictions that products be listed by Underwriters’ Laboratories, Inc. (“UL”) or other similar recognized laboratories. HBB also uses Intertek Testing Services for certification and testing of compliance with UL standards, as well as other nation- and industry-specific standards. HBB endeavors to have its products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Section 1502 (the "Dodd-Frank Act") requires public companies to disclose whether certain minerals, commonly known as "conflict minerals," are necessary to the functionality or production of a product manufactured by those companies and if those minerals originated in the Democratic Republic of the Congo ("DRC") or an adjoining country. The ongoing implementation of these disclosure requirements by HBB could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in HBB's products. In addition, the supply-chain due diligence investigation required by the conflict minerals rules requires expenditures of resources and management attention, regardless of the results of the investigation.
Employees
As of December 31, 2014 , HBB’s work force, including Weston Brands, consisted of approximately 600 employees, none of whom are represented by unions except 16 hourly employees at HBB’s Picton, Ontario distribution facility. These employees are represented by an employee association which performs a consultative role on employment matters. None of HBB’s U.S. employees are unionized. HBB believes its current labor relations with both union and non-union employees are satisfactory.
C. Kitchen Collection
General
KC is a national specialty retailer of kitchenware operating under the Kitchen Collection ® and Le Gourmet Chef ® store names in outlet and traditional malls throughout the United States. 
Sales and Marketing
KC operated 248 retail stores as of December 31, 2014 under the Kitchen Collection ® and Le Gourmet Chef ® store names in outlet and traditional malls throughout the United States. The stores sell kitchenware from highly recognizable name-brands, including Hamilton Beach ® and Proctor Silex ® .
Seasonality
Revenues and operating profit for KC are traditionally greater in the second half of the year as sales to consumers increase significantly with the fall holiday-selling season. Because of the seasonality of purchases of its products, KC incurs substantial short-term debt to finance inventories in anticipation of the fall holiday-selling season.
Product Design and Development
KC, a retailer, has limited expenditures for product design and development activities.
Product Sourcing and Distribution
KC purchases all inventory centrally, which allows KC to take advantage of volume purchase discounts and monitor controls over inventory and product mix. KC purchases its inventory from approximately 250 suppliers, one of which represented approximately 21% of purchases during the year ended December 31, 2014 . No other supplier represents more than 10% of purchases. KC believes that the loss of any one supplier would not have a long-term material adverse effect on its business because there are adequate supplier choices available that can meet KC’s requirements. However, the loss of a supplier could, in the short term, adversely affect KC’s business until alternative supply arrangements are secured.
KC currently maintains its inventory for distribution to its stores at a distribution center located near its corporate headquarters in Chillicothe, Ohio.
In the near term, KC expects to add stores cautiously and focus its growth on its core Kitchen Collection ® stores, with new stores expected to be positioned in optimum locations in strong outlet malls. Longer term, KC plans to focus on comparable store sales growth around a solid core store portfolio. KC expects to accomplish this by enhancing sales volume and profitability through continued refinement of its formats and ongoing review of specific product offerings, merchandise mix, store displays and appearance, while continuing to improve inventory efficiency. Increasing sales of higher-margin products will continue to be a key focus. The company will also continue to evaluate and, as lease contracts permit, close or restructure leases for underperforming and loss-generating stores.
Competition
KC competes against a diverse group of retailers, including specialty stores, department stores, discount stores and internet and catalog retailers. The retail environment continues to be extremely competitive. Widespread Chinese sourcing of products allows many retailers to offer value-priced kitchen products.

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KC believes there is growth potential in kitchenware retailing, but only through offering unique, high-quality products at prices affordable to most consumers. While a number of very low-end and very high-end kitchenware retailers participate in the marketplace, KC believes there is still an opportunity for stores offering mid-priced, high-quality kitchenware.
Patents, Trademarks, Copyrights and Licenses
KC holds trademarks registered in the U.S. for the Kitchen Collection ® and Le Gourmet Chef ® store names. KC believes that the Kitchen Collection ® store name trademark is material to its business.
Employees
As of December 31, 2014 , KC’s work force consisted of approximately 1,500 employees. None of KC’s employees are unionized. KC believes its current labor relations with employees are satisfactory.
Item 1A. RISK FACTORS
North American Coal
Termination of or default under long-term mining contracts could materially reduce the Company's profitability.
Substantially all of NACoal's profits are derived from long-term mining contracts. The contracts for certain of NACoal's unconsolidated mines permit the customer under some conditions of default to acquire the assets or stock of the NACoal subsidiary for an amount roughly equal to book value. In one case, the customer may elect to acquire the stock of the subsidiary upon a specified period of prior notice, for any reason, in exchange for payments to NACoal on coal mined at that facility in the future. If any of NACoal's long-term mining contracts were terminated or if any of its customers were to default under the contracts, profitability could be materially reduced to the extent that NACoal is unable to find alternative customers at the same level of profitability.
NACoal's unconsolidated mines are subject to risks created by changes in customer demand, inflationary adjustments and tax rates.
The contracts with the unconsolidated mines’ customers allow each mine to sell coal at a price based on actual cost plus an agreed pre-tax profit per ton or cost plus a management fee during the production stage. During the development stage, the contracts with the unconsolidated mines' customers (other than the Coyote Creek customer) provide for reimbursement of actual costs incurred plus a monthly management fee. Coyote Creek's customer does not reimburse developments costs until the production stage, when certain deferred development costs are reimbursed over a 52-month period. During the production stage, the unconsolidated mines' customers pay the Company its per-ton profit or management fee only for the coal they consume and use. As a result, reduced coal usage by customers for any reason, including, but not limited to, fluctuations in demand due to unanticipated weather conditions, scheduled and unscheduled power plant outages, economic conditions or governmental regulations, could have a material adverse effect on the Company's results of operations. Because of the contractual price formulas for the sale of coal and mining services by these unconsolidated mines, the profitability of these operations is also subject to fluctuations in inflationary adjustments (or lack thereof) that can impact the per ton profit or management fee paid for the coal and taxes applicable to NACoal's income on that coal. In addition, any changes in tax laws that eliminate benefits for percentage depletion would have a material adverse effect on the Company. These factors could materially reduce NACoal's profitability.
NACoal’s consolidated mining operations are subject to risks created by its capital investment in the mines, the costs of mining the coal and the dragline mining equipment costs, in addition to risks created by changes in customer demand, inflationary adjustments and tax rates.
The consolidated mining operations are comprised of MLMC, Reed Minerals, dragline mining services, royalties from mineral leases to other mining and oil and gas companies, and other activities. The profitability of these consolidated mining operations is subject to the risk of loss of investment in these mining operations, changes in demand from customers, as well as increases in the cost of mining the coal and changes in the market values of coal, oil and gas. At MLMC and Reed Minerals, the costs of mining operations are not reimbursed by customers. As such, increased costs at MLMC and Reed Minerals and decreases in the market value of coal sold by Reed Minerals could materially reduce NACoal's profitability. NACoal's operations are subject to changes in customer demand for any reason, including, but not limited to, fluctuations in demand due to unanticipated weather conditions, the emergence of unidentified adverse mining conditions, availability of alternative fuels such as natural gas at reduced prices making coal-fueled generation less competitive with natural gas-fueled generation, planned and unplanned power plant outages, economic conditions, including economic conditions that adversely affect the demand for coal and steel, governmental regulations, inflationary adjustments and tax risks. In addition, any changes in tax laws that eliminate benefits for

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percentage depletion or eliminate the expensing of exploration and development costs could have a material adverse effect on NACoal's profitability.
Mining operations are vulnerable to weather and other conditions that are beyond NACoal's control.
Many conditions beyond NACoal's control can decrease the delivery, and therefore the use, of coal to NACoal's customers. These conditions include weather, adverse mining conditions, availability of alternative fuels such as natural gas at reduced prices making coal-fueled generation less competitive with natural gas-fueled generation, unexpected maintenance problems and shortages of replacement parts, which could significantly reduce the Company's profitability.
Government regulations could impose costly requirements on NACoal.
The coal mining industry is subject to extensive regulation by federal, state and local authorities on matters concerning the health and safety of employees, land use, permit and licensing requirements, air and water quality standards, plant and wildlife protection, reclamation and restoration of mining properties after mining, the discharge of GHGs and other materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Legislation mandating certain benefits for current and retired coal miners also affects the industry. Mining operations require numerous governmental permits and approvals. NACoal is required to prepare and present to federal, state or local authorities data pertaining to the impact the production of coal may have upon the environment. The public, including non-governmental organizations, opposition groups and individuals, have statutory rights to comment upon and submit objections to requested permits and approvals. Compliance with these requirements may be costly and time-consuming and may delay commencement or continuation of development or production. New legislation and/or regulations and orders may materially adversely affect NACoal's mining operations or its cost structure. All of these factors could significantly reduce the Company's profitability. See “Item 1. Business — A. North American Coal — Government Regulation" on page 11 in this Form 10-K for further discussion.
NACoal is subject to burdensome federal and state mining regulations.
Federal and state statutes require NACoal to restore mine property in accordance with specified standards and an approved reclamation plan, and require that NACoal obtain and periodically renew permits for mining operations. Regulations require NACoal to incur the cost of reclaiming current mine disturbance. Although the Company believes that appropriate accruals have been recorded for all expected reclamation and other costs associated with closed mines, future profitability would be adversely affected if accruals for these costs are later determined to be insufficient or if changed conditions, including adverse judicial proceedings or revised assumptions, require a change in these reserves.
The Clean Air Act requirements affecting coal consumption could increase mining expenses and reduce the demand for coal.
The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including carbon dioxide, sulfur dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA and the corresponding state laws that extensively regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations occur through CAA permitting requirements and/or emission control requirements relating to air contaminants, especially particulate matter. Indirect impacts on coal mining operations occur through regulation of the air emissions of carbon dioxide, sulfur dioxide, nitrogen oxides, mercury, particulate matter and other compounds emitted by coal-fired power plants. The EPA has promulgated or proposed regulations that impose tighter emission restrictions on a number of these compounds, some of which are currently subject to litigation. The general effect of tighter restrictions could be to reduce demand for coal. Any reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business, financial condition and results of operations. See “Item 1. Business — A. North American Coal — Government Regulation" on page 11 in this Form 10-K for further discussion.
NACoal is subject to the high costs and risks involved in the development of new coal and dragline mining projects.
From time to time, NACoal seeks to develop new coal and dragline mining projects. The costs and risks associated with such projects can be substantial. In addition, any changes in tax laws that eliminate the expensing of exploration and development costs will increase the after-tax cost of building a mine and make the cost of coal less competitive with other power-generation fuels.
Estimates of NACoal's recoverable coal reserves involve uncertainties, and inaccuracies in these estimates could result in lower than expected revenues, higher than expected costs, decreased profitability and asset impairments.
NACoal estimates recoverable coal reserves based on engineering and geological data assembled and analyzed by internal and, less frequently, external engineers and geologists. NACoal's estimates as to the quantity and quality of the coal in its reserves

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are updated annually to reflect production of coal from the reserves and new drilling, engineering or other data. These estimates depend upon a variety of factors and assumptions, many of which involve uncertainties and factors beyond NACoal's control, such as geological and mining conditions that may not be fully identified by available exploration data or that may differ from experience in current operations.
For these reasons, estimates of the recoverable quantities and qualities attributable to any particular group of properties, classifications of reserves based on risk of recovery and estimates of net cash flows expected from particular reserves may vary substantially. In addition, coal tonnage recovered from identified reserve areas or properties and revenues and expenditures with respect to NACoal's reserves may vary materially from estimates. Accordingly, NACoal's estimates may vary from the actual reserves. Any inaccuracy in the reserve estimates could result in lower than expected revenues, higher than expected costs, decreased profitability and asset impairments.
Hamilton Beach Brands
HBB's business is sensitive to the strength of the North American retail markets and weakness in these markets could adversely affect its business.
The strength of the retail economy in the United States, and to a lesser degree in Canada and Mexico, has a significant impact on HBB's performance. Weakness in consumer confidence and poor financial performance by mass merchandisers, warehouse clubs, department stores or any of HBB's other customers would result in reduced revenues and profitability. A general slowdown in the retail sector could result in additional pricing and marketing support pressures on HBB.
The market for HBB's products is highly seasonal and dependent on consumer spending, which could result in significant variations in the Company's revenues and profitability.
Sales of HBB's products are related to consumer spending. Any downturn in the general economy or a shift in consumer spending away from small electric household appliances would adversely affect its business. In addition, the market for small electric household appliances is highly seasonal in nature. HBB generally recognizes a substantial portion of its sales in the last half of the year as sales of small electric appliances to retailers and consumers increase significantly with the fall holiday-selling season. Accordingly, quarter-to-quarter comparisons of past operating results of HBB are meaningful only when comparing equivalent time periods, if at all. Any economic downturn, decrease in consumer spending or shift in consumer spending away from small electric household appliances may significantly reduce revenues and profitability.
HBB is dependent on key customers and the loss of, or significant decline in business from, one or more of its key customers could materially reduce its revenues and profitability and its ability to sustain or grow its business.
HBB relies on several key customers, which is discussed under “Item 1. Business — B. Hamilton Beach Brands — Sales and Marketing" on page 16 in this Form 10-K. Although HBB has long-established relationships with many customers, it does not have any long-term supply contracts with these customers, and purchases are generally made using individual purchase orders. A loss of any key customer could result in significant decreases in HBB's revenues and profitability and an inability to sustain or grow its business.
HBB must receive a continuous flow of new orders from its large, high-volume retail customers; however, it may be unable to continually meet the needs of those customers. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could impair its ability to sustain or grow its business.
As a result of dependence on its key customers, HBB could experience a material adverse effect on its revenues and profitability if any of the following were to occur:
the insolvency or bankruptcy of any key customer;
a declining market in which customers materially reduce orders or demand lower prices; or
a strike or work stoppage at a key customer facility, which could affect both its suppliers and customers.
If HBB were to lose, or experience a significant decline in business from, any major retail customer or if any major retail customers were to go bankrupt, HBB might be unable to find alternate distribution outlets.
HBB depends on third-party suppliers for the manufacturing of all of its products, which subjects the Company to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
HBB is dependent on third-party suppliers for the manufacturing of all of its products. HBB's ability to select reliable suppliers who provide timely deliveries of quality products will impact its success in meeting customer demand. Any inability of HBB's

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suppliers to timely deliver products that meet HBB's specifications or any unanticipated changes in suppliers could be disruptive and costly to the Company. Any significant failure by HBB to obtain quality products on a timely basis at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on the Company's revenues and profitability.
Because HBB's suppliers are primarily based in China, international operations subject the Company to additional risks including, among others:
currency fluctuations;
labor unrest;
potential political, economic and social instability;
lack of developed infrastructure;
restrictions on transfers of funds;
import and export duties and quotas;
changes in domestic and international customs and tariffs;
uncertainties involving the costs to transport products;
long distance shipping routes dependent upon a small group of shipping and rail carriers;
unexpected changes in regulatory environments;
regulatory issues involved in dealing with foreign suppliers and in exporting and importing products;
protection of intellectual property;
difficulty in complying with a variety of foreign laws;
difficulty in obtaining distribution and support; and
potentially adverse tax consequences.
The foregoing factors could have a material adverse effect on HBB's ability to maintain or increase the supply of products, which may result in material increases in expenses and decreases in revenues and profitability.
Increases in costs of products may materially reduce the Company's profitability.
Factors that are largely beyond the Company's control, such as movements in commodity prices for the raw materials needed by suppliers of HBB's products, may affect the cost of products, and HBB may not be able to pass those costs on to its customers. As an example, HBB's products require a substantial amount of plastic. Because the primary resource used in plastic is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum. When the prices of petroleum, as well as steel, aluminum and copper, increase significantly, they may materially reduce the Company's profitability.
The increasing concentration of HBB's small electric household and specialty housewares appliance sales among a few retailers and the trend toward private label brands could materially reduce revenues and profitability.
With the growing trend towards the concentration of HBB's small electric household and specialty housewares appliance sales among a few retailers, HBB is increasingly dependent upon fewer customers whose bargaining strength is growing as a result of this concentration. HBB sells a substantial quantity of products to mass merchandisers, ecommerce retailers, national department stores, variety store chains, drug store chains, specialty home retailers and other retail outlets. These retailers generally purchase a limited selection of small electric household appliances. As a result, HBB competes for retail shelf space with its competitors. In addition, certain of HBB's larger customers use their own private label brands on household appliances that compete directly with some of HBB's products. As the retailers in the small electric household appliance industry become more concentrated, competition for sales to these retailers may increase, which could materially reduce the Company's revenues and profitability.

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The small electric household, specialty housewares appliances and commercial appliance industry is consolidating, which could reduce HBB's ability to successfully secure product placements at key customers and limit its ability to sustain a cost competitive position in the industry.
Over the past several years, the small electric household, specialty housewares appliances and commercial appliance industry has undergone substantial consolidation, and further consolidation is likely. As a result of this consolidation, the small electric household, specialty housewares appliances and commercial appliance industry primarily consists of a limited number of large distributors. To the extent that HBB does not continue to be a major participant in the small electric household, specialty housewares appliances and commercial appliance industry, its ability to compete effectively with these larger distributors could be negatively impacted. As a result, this condition could reduce HBB's ability to successfully secure product placements at key customers and limit the ability to sustain a cost competitive position in the industry.
HBB's inability to compete effectively with competitors in its industry, including large established companies with greater resources, could result in lost market share and decreased revenues.
The small electric household, specialty housewares appliances and commercial appliance industry does not have substantial entry barriers. As a result, HBB competes with many small manufacturers and distributors of housewares products. Additional competitors may also enter this market and cause competition to intensify. For example, some of HBB's customers have expressed interest in sourcing, or expanding the extent of sourcing, small electric household and commercial appliances directly from manufacturers in Asia. The Company believes competition is based upon several factors, including product design and innovation, quality, price, product features, merchandising, promotion and warranty. If HBB fails to compete effectively with these manufacturers and distributors, it could lose market share and experience a decrease in revenues, which would adversely affect the Company's results of operations.
HBB also competes with established companies, a number of which have substantially greater facilities, personnel, financial and other resources. In addition, HBB competes with retail customers, who use their own private label brands, and importers and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete. As a result of this competition, HBB could lose market share and revenues.
Government regulations could impose costly requirements on HBB.
The SEC adopted conflict mineral rules under Section 1502 of Dodd-Frank on August 22, 2012. The rules require disclosure of the use of certain minerals, known as "conflict minerals," which are mined from the DRC and adjoining countries. HBB expects that it will incur additional costs and expenses, which may be significant, in order to comply with these rules, including (i) due diligence to verify the sources of such conflict minerals; and (ii) any changes that HBB may make to its products, processes, or sources of supply as a result of such diligence and verification activities. Since HBB's supply chain is complex, ultimately it may not be able to designate all products as "DRC conflict free" which may adversely affect its reputation with certain customers. In such event, HBB may also face difficulties in satisfying customers who require products purchased from HBB to be "DRC conflict free". If HBB is not able to meet such requirements, customers may choose not to purchase HBB products, which could adversely affect sales and the value of portions of HBB's inventory. Further, there may be only a limited number of suppliers offering products containing only DRC conflict free parts, components and subassemblies and, as a result, HBB cannot be sure that it will be able to satisfy its purchase requirements from such suppliers in sufficient quantities or at competitive prices. Any one or a combination of these various factors could harm HBB's business, and materially and adversely affect HBB's results of operations.
Kitchen Collection
The market for KC's products is highly seasonal and dependent on consumer spending, which could result in significant variations in the Company's revenues and profitability.
Sales of products sold at KC stores are subject to a number of factors related to consumer spending, including general economic conditions affecting disposable consumer income such as unemployment rates, business conditions, interest rates, levels of consumer confidence, energy prices, mortgage rates, the level of consumer debt and taxation. In addition, KC generally recognizes a substantial portion of its revenues and operating profit in the last half of the year as sales to consumers increase significantly with the fall holiday-selling season. Accordingly, any economic downturn, decrease in consumer spending or a shift in consumer spending away from KC's products could significantly reduce, or cause significant variations in, KC's revenues and profitability.

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KC faces an extremely competitive specialty retail market, and such competition could result in a reduction of KC's prices and loss of market share.
The retail market is highly competitive. KC competes against a diverse group of retailers, including specialty stores, department stores, discount stores and internet and catalog retailers. Widespread sourcing of products allows many retailers to offer value-priced kitchen products. Many of KC's competitors are larger and have significantly greater financial, marketing and other resources. This competition could result in the reduction of KC product prices and a loss of market share, revenues and profitability.
KC may not be able to forecast customer preferences accurately in its merchandise selections.
KC's success depends in part on its ability to anticipate the tastes of its customers and to provide merchandise that appeals to their preferences. KC's strategy requires merchandising staff to introduce products that meet current customer preferences and that are affordable and distinctive in quality and design. KC's failure to anticipate, identify or react appropriately to changes in consumer trends could cause excess inventories and higher mark-downs or a shortage of products and could harm KC's business and operating results.
KC depends on third-party suppliers for all of its products, which subjects KC to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
KC is dependent on third-party suppliers for all of its products. KC's inability to select reliable suppliers who provide timely deliveries of quality products could reduce its success in meeting customer demand. Any inability of KC's suppliers to timely deliver products or any unanticipated changes in suppliers could be disruptive and costly to KC. The loss of a supplier could, in the short term, adversely affect KC’s business until alternative supply arrangements are secured. In addition, KC may not be able to acquire desired merchandise in sufficient quantities on acceptable terms in the future. KC's business could also be adversely affected by delays in product shipments due to freight difficulties, strikes or other difficulties at its principal transport providers. Any significant failure by KC to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on KC's profitability.
NACCO
The Company may be subject to risk relating to increasing cash requirements of certain employee benefits plans which may affect its financial position.
Although the Company's defined benefit pension plans are frozen and no longer provide for the accrual of future benefits, the expenses recorded for, and cash contributions required to be made to its defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual investment returns. Significant changes in market interest rates, decreases in the value of plan assets or investment losses on plan assets may require the Company to increase the cash contributed to defined benefit pension plans which may affect its financial position.
The Company may become subject to claims under foreign laws and regulations, which may be expensive, time consuming and distracting.
Because the Company has employees, property and business operations outside of the United States, the Company is subject to the laws and the court systems of many jurisdictions. The Company may become subject to claims outside the U.S. for violations or alleged violations of laws with respect to the foreign operations of NACoal and HBB. In addition, these laws may be changed or new laws may be enacted in the future. International litigation is often expensive, time consuming and distracting. As a result, any of these risks could significantly reduce the Company's profitability and its ability to operate its businesses effectively.
The Company is dependent on key personnel and the loss of these key personnel could significantly reduce its profitability.
The Company is highly dependent on the skills, experience and services of its key personnel and the loss of key personnel could have a material adverse effect on its business, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of the Company's business. Therefore, the Company's success also depends upon its ability to recruit, hire, train and retain additional skilled and experienced management personnel. The Company's inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business effectively and could significantly reduce its profitability.
The amount and frequency of dividend payments made on NACCO's common stock could change.
The Board of Directors has the power to determine the amount and frequency of the payment of dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are based on earnings, capital and future expense

24


requirements, financial conditions, contractual limitations and other factors the Board of Directors may consider. Accordingly, holders of NACCO's common stock should not rely on past payments of dividends in a particular amount as an indication of the amount of dividends that will be paid in the future.
The Company’s business could suffer if NACCO’s information technology systems are disrupted or cease to operate effectively.
The Company relies heavily on information technology systems to operate websites; record and process transactions; respond to customer inquiries; manage inventory; purchase, sell and ship merchandise on a timely basis; and maintain cost-efficient operations. Given the significant number of transactions that are completed annually, it is vital to maintain constant operation of computer hardware and software systems and maintain cyber security. Despite the Company's cyber security efforts, the Company’s information technology systems may be vulnerable from time to time to damage or interruption from computer viruses, power outages, third-party intrusions and other technical malfunctions. If the Company’s systems are damaged, or fail to function properly, NACCO may have to make monetary investments to repair or replace the systems and could endure delays in operations.
In addition, the Company regularly evaluates information technology systems and requirements and from time to time implements modifications and/or upgrades to the information technology systems that support its businesses. Modifications include replacing existing systems with successor systems, making changes to existing systems and acquiring new systems with new functionality. The Company is aware of the inherent risks associated with replacing and modifying these systems, including inaccurate system information, system disruptions and user acceptance and understanding. The Company believes it is taking appropriate action to mitigate the risks through disciplined adherence to program management, testing systems and user involvement, improving the resiliency of systems, as well as securing appropriate commercial contracts with third-party vendors.
Any material disruption or slowdown of the Company’s systems, including a disruption or slowdown caused by a security breach or the Company’s failure to successfully upgrade its systems, could cause information, including data related to customer orders, to be lost or delayed. Such a loss or delay could reduce demand and cause the Company’s sales and/or profitability to decline.

Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
A. NACCO
NACCO leases office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio, which serves as its corporate headquarters.

B. NACoal

NACoal leases its corporate headquarters office space in Plano, Texas. NACoal’s proven and probable coal reserves and deposits (owned in fee or held under leases, which generally remain in effect until exhaustion of the reserves if mining is in progress) are estimated at approximately 2.0 billion tons (including the unconsolidated mining operations), all of which are lignite coal deposits, except for approximately 93.3 million tons of bituminous coal. Reserves are estimates of quantities of coal, made by NACoal’s geological and engineering staff, which are considered mineable in the future using existing operating methods. Developed reserves are those which have been allocated to mines which are in operation; all other reserves are classified as undeveloped. Information concerning mine type, reserve data and coal quality characteristics for NACoal’s properties are set forth on the table on pages 4 and 5 under “Item 1. Business — A. North American Coal — Sales, Marketing and Operations.”

25


C. Hamilton Beach Brands
The following table presents the principal distribution and office facilities owned or leased by HBB:
 
 
Owned/
 
 
Facility Location
 
Leased
 
Function(s)
Glen Allen, Virginia
 
Leased
 
Corporate headquarters
Geel, Belgium
 
(1)
 
Distribution center
Shenzhen, People's Republic of China
 
(1)
 
Distribution center
Mexico City, Mexico
 
Leased
 
Mexico sales and administrative headquarters
Tlalnepantla de Baz, Mexico
 
(1)
 
Distribution center
Olive Branch, Mississippi
 
Leased
 
Distribution center
Picton, Ontario, Canada
 
Leased
 
Distribution center
Southern Pines, North Carolina
 
Owned
 
Service center for customer returns; catalog distribution center; parts distribution center
Shenzhen, People's Republic of China
 
Leased
 
Administrative office
Markham, Ontario, Canada
 
Leased
 
Canada sales and administration headquarters
City of Sao Paulo, Sao Paulo, Brazil
 
Leased
 
Brazil sales and administrative headquarters
Jundiai, Sao Paulo, Brazil
 
(1)
 
Distribution center
Shanghai, People's Republic of China
 
Leased
 
Sales office
Strongsville, Ohio
 
Subleased
 
Weston Brands sales and distribution center

(1)
This facility is not owned or leased by HBB. This facility is managed by a third-party distribution provider.
Sales offices are also leased in several cities in the United States, Canada, China and Mexico.
D. The Kitchen Collection

KC leases its corporate headquarters building and the KC warehouse/distribution facility in Chillicothe, Ohio. KC leases its retail stores. A typical Kitchen Collection ® store is approximately 3,000 square feet and a typical Le Gourmet Chef ® store is approximately 4,300 square feet. At December 31, 2014 , there were 237 Kitchen Collection ® stores and 11 Le Gourmet Chef ® stores.

Item 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to any material legal proceeding other than ordinary routine litigation incidental to its respective business.

Item 4. MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 filed with this Form
10-K.


26



Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is elected and qualified.
The following tables set forth the name, age, current position and principal occupation and employment during the past five years of the Company’s executive officers. Certain executive officers of the Company listed below are also executive officers for certain of NACCO's subsidiaries.
EXECUTIVE OFFICERS OF THE COMPANY
Name
 
Age
 
Current Position
 
Other Positions
 
 
 
 
 
 
 
Alfred M. Rankin, Jr.
 
73

 
Chairman, President and Chief Executive Officer of NACCO (from prior to 2010), Chairman of HBB (from January 2010), Chairman of KC (from January 2010), Chairman of NACoal (from February 2010)
 
Chairman, President and Chief Executive Officer of Hyster-Yale (from September 2012). Chairman of NACCO Materials Handling Group, Inc (from prior to 2010).
 
 
 
 
 
 
 
J.C. Butler, Jr.
 
54

 
Senior Vice President - Finance, Treasurer and Chief Administrative Officer of NACCO (from September 2012), Senior Vice President - Project Development, Administration and Mississippi Operations of NACoal (from July 2014), Assistant Secretary of HBB and KC (from November 2012)
 
From January 2010 to June 2014, Senior Vice President - Project Development and Administration of NACoal. From prior to 2010 to September 2012, Vice President - Corporate Development and Treasurer of NACCO. From September 2011 to September 2012, Treasurer of NACCO Materials Handling Group, Inc. From prior to 2010 to January 2010, Senior Vice President - Project Development of NACoal.
 
 
 
 
 
 
 
Elizabeth I. Loveman
 
45

 
Vice President and Controller (from March 2014) and Principal Financial Officer (from June 2014)
 
From December 2012 to March 2014, Director of Financial Reporting of NACCO. From prior to 2010 to November 2012, Manager of Financial Reporting of OM Group, Inc.
 
 
 
 
 
 
 
John D. Neumann
 
39

 
Vice President, General Counsel and Secretary of NACCO (from September 2012), Vice President, General Counsel and Secretary of NACoal (from January 2011), Assistant Secretary of HBB and KC (from November 2012)
 
From prior to 2010 to December 2010, Assistant General Counsel and Assistant Secretary of NACoal.
 
 
 
 
 
 
 
Miles B. Haberer
 
48

 
Associate General Counsel and Assistant Secretary of NACCO (from October 2012), Associate General Counsel, Assistant Secretary of NACoal (from October 2012) and Director-Land of NACoal (from October 2013)    
                                                        

 
From prior to 2010 to October 2012, Partner, Hunton & Williams (law firm). 

 
 
 
 
 
 
 
Mary D. Maloney
 
53

 
Associate General Counsel, Assistant Secretary and Senior Director - Benefits & Human Resources of NACCO (from January 1, 2014), Associate General Counsel, Assistant Secretary and Senior Director - Benefits and Compensation of NACoal (from January 1, 2014)

 
From September 2012, Associate General Counsel and Assistant Secretary of Hyster-Yale. From September 2012, Associate General Counsel and Assistant Secretary of NMHG. From May 2012 to September 2012, Assistant General Counsel and Assistant Secretary of Hyster-Yale. From prior to 2010 to September 2012, Assistant General Counsel and Assistant Secretary of NACCO. From August 2011 to September 2012, Assistant Secretary of NMHG.
 
 
 
 
 
 
 
Jesse L. Adkins
 
32

 
Associate Counsel (from September 2012) and Assistant Secretary of NACCO (from November 2013), Associate Counsel (from August 2012) and Assistant Secretary (from May 2013) of NACoal                                
                          

 
From prior to 2010 to December 2010, Managing Principal, Studio Properties, LLC (commercial property redevelopment firm). From January 2011 to August 2012, Law Clerk, NACoal.




27



PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
A. NACOAL
Name
 
Age
 
Current Position
 
Other Positions
 
 
 
 
 
 
 
Robert L. Benson
 
67

 
President and Chief Executive Officer of NACoal (from prior to 2010)
 
 
 
 
 
 
 
 
 
Carroll L. Dewing
 
58

 
Vice President - North Dakota, Texas and Florida Operations, Human Resources and External Affairs of NACoal (from July 2014) and President, The Coteau Properties Company (an NACoal subsidiary) (from September 2011)
 
From October 2013 to July 2014, President, The Coteau Properties Company (an NACoal subsidiary) and Director - Northern Operations of NACoal. From September 2011 to October 2013, President, The Coteau Properties Company. From January 2010 to September 2011, President, The Falkirk Mining Company (an NACoal subsidiary). From prior to 2010 to January 2010, Administration/Engineering Manager, The Falkirk Mining Company.

 
 
 
 
 
 
 
Michael J. Gregory
 
67

 
Vice President - Marketing and Special Projects of NACoal (from October 2013)
 
From August 2010 to September 2013, Vice President - International Operations and Special Projects of NACoal. From prior to 2010 to August 2010, Vice President - Engineering, Human Resources and International Operations of NACoal.
 
 
 
 
 
 
 
K. Donald Grischow
 
67

 
Treasurer, Director - Compensation and Benefits and Global Risk Management of NACoal (from January 2013)
 
Treasurer of NACoal (from prior to 2010)
 
 
 
 
 
 
 
John R. Pokorny
 
59

 
Controller of NACoal (from prior to 2010)
 
 
 
 
 
 
 
 
 
J. Patrick Sullivan, Jr.


 
56

 
Vice President and Chief Financial Officer of NACoal (from May 2013)
 
From prior to 2010 to May 2013, Controller, Luminant Generation, Mining, Construction and Development of Energy-Future Holdings Corporation.
 
 
 
 
 
 
 
Harry B. Tipton III
 
57

 
Vice President - Engineering, and Alabama and Louisiana Operations of NACoal (from July 2014)

 
From October 2013 to June 2014, Vice President - Engineering, and Alabama, Louisiana and Mississippi Operations of NACoal. From September 2010 to October 2013, Vice President - Engineering, and Louisiana and Mississippi Operations of NACoal. From prior to 2010 to September 2010, General Manager of Mississippi Lignite Mining Company.

28


PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
B. HBB
Name
 
Age
 
Current Position
 
Other Positions
 
 
 
 
 
 
 
Gregory H. Trepp
 
53

 
President and Chief Executive Officer of HBB (from January 2010), Chief Executive Officer of KC (from January 2010)
 
From November 2013 to December 2014, Interim President of KC. From prior to 2010 to January 2010, Vice President, Global Marketing of HBB. From prior to 2010 to January 2010, Interim President and Chief Executive Officer of KC.
 
 
 
 
 
 
 
Keith B. Burns
 
58

 
Vice President, Engineering and Information Technology of HBB (from prior to 2010)
 
 
 
 
 
 
 
 
 
Kathleen L. Diller
 
63

 
Vice President, General Counsel and Secretary of HBB (from prior to 2010)
 
 
 
 
 
 
 
 
 
Richard E. Moss
 
51

 
Senior Director, Finance &Treasurer of HBB (from January 2011)
 
From prior to 2010 to December 2010, Senior Director Finance and Credit of HBB. From prior to 2010, Director Financial Planning and Analysis of HBB.
 
 
 
 
 
 
 
Gregory E. Salyers
 
54

 
Senior Vice President, Global Operations of HBB (from January 2010)
 
From prior to 2010 to January 2010, Vice President, Global Operations of HBB.
 
 
 
 
 
 
 
Dana B. Sykes
 
53

 
Associate General Counsel, Assistant Secretary and Senior Director, Human Resources of HBB (from July 2014)
 
From February 2012 to July 2014, Assistant General Counsel and Director, Human Resources of HBB. From prior to 2010 to February 2012, Assistant General Counsel of HBB.
 
 
 
 
 
 
 
James H. Taylor
 
57

 
Vice President and Chief Financial Officer of HBB (from January 2011)
 
From prior to 2010 to January 2011, Vice President, Chief Financial Officer and Treasurer of HBB.
 
 
 
 
 
 
 
R. Scott Tidey
 
50

 
Senior Vice President, North America Sales and Marketing of HBB (from January 2010)
 
From prior to 2010 to January 2010, Vice President, North America Sales of HBB.
C. KC
Name
 
Age
 
Current Position
 
Other Positions
Robert O. Strenski
 
58
 
President of KC (from January 2015)
 
From February 2014 to December 2014, Vice President, General Merchandise Manager of KC. From June 2013 to January 2014, General Merchandise Manager of KC. From April 2010 to January 2013, Vice President, Divisional Merchandise Manager, Consumables, Biglots Stores, Inc. From prior to 2010 to March 2010, Vice President, Divisional Merchandise Manager, Furniture, Biglots Stores, Inc.



29


PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
NACCO's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.” Because of transfer restrictions, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis.
The high and low sales prices for the Class A common stock and dividends per share for both classes of common stock for each quarter during the past two years are presented in the table below:
 
2014
 
Sales Price
 
 
 
High
 
Low
 
Cash Dividend
Fourth quarter
$
63.88

 
$
47.42

 
$
0.2575

Third quarter
$
55.90

 
$
46.59

 
$
0.2575

Second quarter
$
56.86

 
$
46.50

 
$
0.2575

First quarter
$
62.84

 
$
49.44

 
$
0.2500

 
2013
 
Sales Price
 
 
 
High
 
Low
 
Cash Dividend
Fourth quarter  
$
65.40

 
$
53.87

 
$
0.2500

Third quarter
$
63.91

 
$
53.52

 
$
0.2500

Second quarter
$
60.34

 
$
47.69

 
$
0.2500

First quarter
$
67.35

 
$
53.07

 
$
0.2500

At December 31, 2014 , there were approximately 756 Class A common stockholders of record and approximately 175 Class B common stockholders of record. See Note 19 to Consolidated Financial Statements contained elsewhere in this Form 10-K for a discussion of the amount of NACCO's investment in subsidiaries that was restricted at December 31, 2014 .
Sales of Unregistered Company Stock
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate of 10,318 shares of its Class A common stock on January 1, 2014, April 1, 2014, July 1, 2014 and October 1, 2014 for payment of a portion of the directors’ annual retainer fee. In addition, pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and any committee chairman's fees. An aggregate of 1,091 shares of Class A common stock was issued under voluntary elections on January 1, 2014, April 1, 2014, July 1, 2014 and October 1, 2014. The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities Act of 1933.
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate of 9,712 shares of its Class A common stock on January 1, 2013, April 1, 2013, July 1, 2013 and October 1, 2013 for payment of a portion of the directors’ annual retainer fee. In addition, pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and any committee chairman's fees. An aggregate of 1,333 shares of Class A common stock was issued under voluntary elections on January 1, 2013, April 1, 2013, July 1, 2013 and October 1, 2013. The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities Act of 1933.
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, the Company issued an aggregate of 7,882 shares of its Class A common stock on January 1, 2012, April 1, 2012, July 1, 2012 and October 1, 2012 for payment of a portion of the directors’ annual retainer fee. In addition, pursuant to the terms of such plan, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and any committee chairman's fees. An aggregate of 2,078 shares of Class A common stock were issued under voluntary elections on January 1, 2012, April 1, 2012, July 1, 2012 and October 1, 2012. The issuance of these unregistered shares qualifies as an exempt transaction pursuant to Section 4(2) of the Securities Act of 1933.


30


Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
Period
(a)
Total Number of Shares Purchased
 
(b)
Average Price Paid per Share
 
(c)
Total Number of Shares Purchased as Part of the Publicly Announced Program
 
(d)
Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Program  (1)
Month #1
(October 1 to 31, 2014)
102,889

 
$
50.30

 
102,889

 
$
27,464,391

Month #2
(November 1 to 30, 2014)
25,901

 
$
58.29

 
25,901

 
$
25,954,506

Month #3
(December 1 to 31, 2014)
33,597

 
$
57.88

 
33,597

 
$
24,010,025

     Total
162,387

 
$
56.81

 
162,387

 
$
24,010,025


(1)
On November 8, 2011, the Company announced that the Company's Board of Directors approved the repurchase of up to $50 million of the Company's outstanding Class A common stock (the "2011 Stock Repurchase Program"). The original authorization for the 2011 Stock Repurchase Program expired on December 31, 2012; however, in November 2012 the Company's Board of Directors approved an extension of the 2011 Stock Repurchase Program through December 31, 2013. In total, the Company repurchased $35.6 million of Class A common stock under the 2011 Stock Repurchase Program.

On November 12, 2013, the Company's Board of Directors terminated the 2011 Stock Repurchase Program and approved a new stock repurchase program (the "2013 Stock Repurchase Program") providing for the purchase of up to $60 million of the Company's outstanding Class A Common Stock through December 31, 2015. The timing and amount of any repurchases under the 2013 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 and market conditions for the Company's Class A common stock. The 2013 Stock Repurchase Program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2013 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 prevented from doing so. As of December 31, 2014 , the Company has repurchased $36.0 million of Class A common stock under the 2013 Stock Repurchase Program.



31


Item 6. SELECTED FINANCIAL DATA
 
Year Ended December 31
 
2014 (1)
 
2013
 
2012
 
2011 (3)
 
2010 (3)
 
(In millions, except per share data)
Operating Statement Data:
 
 
 
 
 
 
 
 
 
Revenues
$
896.8

 
$
932.7

 
$
873.4

 
$
790.5

 
$
885.6

 
 
 
 
 
 
 
 
 
 
Operating profit (loss)
$
(66.3
)
 
$
61.3

 
$
67.6

 
$
64.1

 
$
94.2

 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(38.1
)
 
$
44.5

 
$
42.2

 
$
79.5

 
$
47.1

Discontinued operations, net of tax (2)

 

 
66.5

 
82.6

 
32.4

Net income (loss)
$
(38.1
)
 
$
44.5

 
$
108.7

 
$
162.1

 
$
79.5

 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.48

 
$
5.04

 
$
9.49

 
$
5.66

Discontinued operations (2)

 

 
7.93

 
9.85

 
3.89

Basic earnings (loss) per share
$
(5.02
)
 
$
5.48

 
$
12.97

 
$
19.34

 
$
9.55

 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.47

 
$
5.02

 
$
9.46

 
$
5.65

Discontinued operations (2)

 

 
7.90

 
9.82

 
3.88

Diluted earnings (loss) per share
$
(5.02
)
 
$
5.47

 
$
12.92

 
$
19.28

 
$
9.53


(1)
During the fourth quarter of 2014, NACoal determined that indicators of impairment existed at its Reed Minerals mining operations and as a result reviewed the Reed Minerals long-lived assets for impairment. NACoal recorded a non-cash, asset impairment charge of $105.1 million for the Reed Minerals' long-lived asset group. See Note 5 ,
Note 6 and Note 10 to the Consolidated Financial Statements for further discussion of the Company's long-lived asset impairment.
(2)
During 2012, NACCO spun-off Hyster-Yale, a former subsidiary. The results of operations of Hyster-Yale are reflected as discontinued operations in the table above.
(3)
In 2006, the Company initiated litigation in the Delaware Chancery Court against Applica Incorporated ("Applica") and individuals and entities affiliated with Applica's shareholder, Harbinger Capital Partners Master Fund, Ltd. The litigation alleged a number of contract and tort claims against the defendants related to the Company's failed transaction with Applica, which had been previously announced. On February 14, 2011, the parties to this litigation entered into a settlement agreement. The settlement agreement provided for, among other things, the payment of
$60 million to the Company and dismissal of the lawsuit with prejudice. The payment was received in February 2011. Litigation costs related to this matter were $2.8 million and $18.8 million in 2011 and 2010, respectively.

 


32


 
Year Ended December 31
 
2014
 
2013
 
2012 (2)
 
2011
 
2010
 
(In millions, except per share and employee data)
Balance Sheet Data at December 31:
 
 
 
 
 
 
 
 
 
Total assets  (2)
$
770.5

 
$
810.0

 
$
776.3

 
$
1,808.8

 
$
1,670.9

Long-term debt  (2)
$
191.4

 
$
152.4

 
$
135.4

 
$
74.5

 
$
139.8

Stockholders' equity
$
211.5

 
$
297.8

 
$
281.3

 
$
576.2

 
$
447.4

 
 
 
 
 
 
 
 
 
 
Cash Flow Data:
 
 
 
 
 
 
 
 
 
Provided by operating activities (4)
$
19.8

 
$
53.1

 
$
143.0

 
$
155.2

 
$
63.1

Used for investing activities (4)
$
(74.9
)
 
$
(60.7
)
 
$
(74.2
)
 
$
(32.7
)
 
$
(5.8
)
Provided by (used for) financing activities (4)
$
21.0

 
$
(36.8
)
 
$
(123.4
)
 
$
(41.9
)
 
$
(43.3
)
 
 
 
 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
 
 
 
 
Per share data:
 
 
 
 
 
 
 
 
 
Cash dividends   (3)
$
1.0225

 
$
1.0000

 
$
5.3775

 
$
2.1200

 
$
2.0850

Market value at December 31
$
59.36

 
$
62.19

 
$
60.69

 
$
89.22

 
$
108.37

Stockholders' equity at December 31
$
29.23

 
$
37.83

 
$
33.68

 
$
68.81

 
$
53.69

 
 
 
 
 
 
 
 
 
 
Actual shares outstanding at December 31
7.236

 
7.872

 
8.353

 
8.374

 
8.333

Basic weighted average shares outstanding
7.590

 
8.105

 
8.384

 
8.383

 
8.328

Diluted weighted average shares outstanding
7.590

 
8.124

 
8.414

 
8.408

 
8.344

Total employees at December 31 (1)
4,000

 
4,100

 
4,300

 
4,000

 
3,900


(1)
Includes employees of Weston Brands in 2014, Reed Minerals starting in 2012 and the unconsolidated mines for all years presented. Excludes employees of Hyster-Yale for all years presented.
(2)
During 2012, the Company spun-off Hyster-Yale, a former subsidiary.
(3)
2012 cash dividends includes a one-time special cash dividend of $3.50 per share. The 25 cent dividend paid in the fourth quarter of 2012 was the first regular quarterly dividend following the spin-off of Hyster-Yale.
(4)
Includes both continuing operations and discontinued operations for 2012, 2011 and 2010.


33



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

OVERVIEW
NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”) operate in the following principal industries: mining, small appliances and specialty retail. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.
The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances primarily in the United States, Canada, Mexico and Latin America, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”), is a national specialty retailer of kitchenware in outlet and traditional malls throughout the U.S. 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition: Revenues are generally recognized when title transfers and risk of loss passes to the customer. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered or services are performed. Revenues at HBB are recognized when customer orders are completed and shipped. Revenues at KC are recognized at the point of sale when payment is made and customers take possession of the merchandise in stores. Reserves for discounts and returns are maintained for anticipated future claims at HBB and KC. The accounting policies used to develop these product discounts and returns include:
Product discounts: The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales. If market conditions were to decline or if competition were to increase, the Company may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenues at the time the incentive is offered. If the Company's estimates of customer programs and incentives were one percent higher than the levels offered during 2014 , the reserves for product discounts would increase and revenues would be reduced by $0.1 million . The Company's past results of operations have not been materially affected by a change in the estimate of product discounts and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
Product returns: Products generally are not sold with the right of return. However, based on the Company's historical experience, a portion of products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certain customers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this new experience. If the Company's estimate of average return rates for each type of product sold were to increase by one percent over historical levels, the reserves for product returns would increase and revenues would be reduced by $0.1 million . The Company's past results of operations have not been materially affected by a change in the estimate of product returns and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.

34



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Retirement benefit plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. During 2013, the Company amended the Combined Plan to freeze pension benefits for all employees, including those for certain unconsolidated mines' employees and cost of living adjustments for other employees, effective as of the close of business on December 31, 2013. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for pension plans are based on fair market value for Non-U.S. pension plan assets.
The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans and health care plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.
Changes to the estimate of any of these factors could result in a material change to the Company's pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the 2014 assumptions are used to calculate 2015 pension expense amounts, a one percentage-point change in the expected long-term rate of return on plan assets would result in a change in pension expense for 2015 of approximately $0.6 million for the plans. A one percentage-point change in the discount rate would result in a change in pension expense for 2015 by approximately $0.1 million . A one percentage-point increase in the discount rate would have lowered the plans’ projected benefit obligation as of the end of 2014 by approximately $6.9 million ; while a one percentage-point decrease in the discount rate would have raised the plans’ projected benefit obligation as of the end of 2014 by approximately $8.3 million .

See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's retirement benefit plans.
Self-insurance liabilities: The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers’ compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changes in any of these factors could materially change the Company's estimates for these self-insurance obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate.
Accounting for Asset Retirement Obligations: The Company's asset retirement obligations are principally for costs to dismantle certain mining equipment as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. Under certain federal and state regulations, the Company is required to reclaim land disturbed as a result of mining. The Company determined the amounts of these obligations based on estimates adjusted for

35



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation. The Company has capitalized an asset’s retirement cost as part of the cost of the related long-lived asset. These capitalized amounts are subsequently amortized to expense using a systematic and rational method.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating income in the period of change in the estimate.
Inventory reserves: The Company writes down its inventory to the lower of cost or market, which includes an estimate for obsolescence or excess inventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs. An impairment in value of one percent of net inventories would result in additional expense of approximately $1.9 million .
Allowances for doubtful accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. An impairment in value of one percent of net accounts receivable would require an increase in the allowance for doubtful accounts and would result in additional expense of approximately $1.8 million .
Long-Lived Assets: The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of the long-lived asset exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company determined that indicators of potential impairment were present during the fourth quarter of 2014 with respect to its Reed Minerals mining operations asset group. The 2015 operating plan and long-range outlook were updated to reflect new information about compliance with the U.S. Environmental Protection Agency’s new Mercury and Air Toxics Standards ("MATS"), continued weakness in the Alabama coal markets, decreased demand and market prices associated with the metallurgical coal market and the lack of any reliable indicators of a recovery in coal demand or price. Reed Minerals obtained new information from its largest thermal coal customer on more stringent coal quality requirements its customer planned to adopt to comply with MATS, beginning in the fourth quarter of 2015 instead of 2016, when MATS compliance becomes mandatory. In contemplation of satisfying the more stringent MATS coal quality requirements, Reed Minerals’ coal processing costs are expected to increase, beginning in 2015, beyond what was previously assumed in the Reed Minerals' 2015 operating plan and long-range outlook, without any increase in selling price.
After considering these factors, the Company assessed the recoverability of Reed Minerals assets and determined that the assets were not fully recoverable when compared to the remaining future undiscounted cash flows from these assets. As a result, the Company estimated the fair value of the asset group and the long-lived assets were written down to their estimated fair value which resulted in a non-cash asset impairment charge of $105.1 million . The asset impairment charge was recorded as Reed Minerals long-lived asset impairment charge in the Consolidated Statement of Operations for the year ended December 31, 2014 and relates exclusively to the NACoal segment. The fair value of the asset group was calculated using the

36



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

combination of a market and income approach and reduced the carrying value of coal land and real estate to $7.2 million , other property, plant and equipment to $37.1 million and intangible assets to zero .
The fair value estimate for the coal land and real estate and other property, plant and equipment was calculated using market data for similar assets, which are classified as Level 2 inputs. The fair value of the coal supply agreement and non-compete intangible assets were estimated to be zero given current market conditions. Key inputs in this model are based on significant unobservable inputs and include the forecast of tons sold and coal pricing and are classified as Level 3 inputs.
In 2014, 2013 and 2012, KC considered its operating loss to be an indicator of impairment.  For KC’s asset impairment analysis, the primary input is projected future cash flows utilizing assumptions consistent with those the Company uses in its internal planning, which are classified as Level 3 inputs. As a result of the fiscal year-end review of long-lived store-related assets, the Company recorded impairment charges of $0.9 million , $1.1 million and $0.7 million in 2014, 2013 and 2012, respectively, included in depreciation expense within Selling, general and administrative expenses in the Consolidated Statements of Operations. Long-lived assets at the stores consist mainly of leasehold improvements and furniture and fixtures. The fair value for leasehold improvements was determined to be zero as such assets were deemed to have no future use or economic benefit based on the Company's analysis using market participant assumptions, and therefore no expected future cash flows. The fair value for store fixtures is based on the market exit price based on historical experience. The impairment charges in 2014 were largely the result of decreased expected future operating results. If operating results do not improve, KC may be required to record additional long-lived asset impairment charges.
See Note 5 , Note 6 and Note 10 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's long-lived asset impairment.
Income taxes: Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns.
The Company's tax assets, liabilities, and tax expense are supported by historical earnings and losses and the Company's best estimates and assumptions of future earnings. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.
Since significant judgment is required to assess the future tax consequences of events that have been recognized in the Company's financial statements or tax returns, the ultimate resolution of these events could result in adjustments to the Company's financial statements and such adjustments could be material. The Company believes the current assumptions, judgments and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. If the actual outcome of future tax consequences differs from these estimates and assumptions, due to changes or future events, the resulting change to the provision for income taxes could have a material impact on the Company's results of operations and financial position

Valuation of acquisitions: The allocation of the purchase price to the tangible assets and liabilities and identifiable intangible assets acquired requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed, especially with respect to contingent consideration in the Reed Minerals acquisition. These estimates are based on information obtained from management of the acquired companies, future coal prices and future volume forecasts. These estimates can include, but are not limited to, the cash flows that the acquisition is expected to generate in the future and the appropriate weighted-average cost of capital. These estimates are inherently uncertain and unpredictable, and if different estimates were used, the purchase price for the acquisition may have been allocated to the acquired assets and liabilities assumed differently from the current allocation. Although the Company believes the assumptions, judgments and estimates used are reasonable and appropriate, different assumptions, judgments and estimates could materially affect the value ascribed to an acquired asset and the Company's results of operations and financial position when changes to the contingent consideration are required to be recorded. See Note 21 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's acquisitions. See Note 10 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Reed Minerals' contingent consideration.

37



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

CONSOLIDATED FINANCIAL SUMMARY
Selected consolidated results of the Company were as follows:
 
2014  (1)
 
2013
 
2012
Consolidated results:
 
 
 
 
 
Income (loss) from continuing operations
$
(38,118
)
 
$
44,450

 
$
42,163

Discontinued operations, net of tax (2)

 

 
66,535

Net income (loss)
$
(38,118
)
 
$
44,450

 
$
108,698

Basic earnings (loss) per share:
 
 
 
 
 
Income (loss) from continuing operations
$
(5.02
)
 
$
5.48

 
$
5.04

Discontinued operations (2)

 

 
7.93

Basic earnings (loss) per share
$
(5.02
)
 
$
5.48

 
$
12.97

Diluted earnings (loss) per share:
 
 
 
 
 
Income (loss) from continuing operations
$
(5.02
)
 
$
5.47

 
$
5.02

Discontinued operations (2)

 

 
7.90

Diluted earnings (loss) per share
$
(5.02
)
 
$
5.47

 
$
12.92


(1)
During the fourth quarter of 2014, the Company recorded a non-cash asset impairment charge of $105.1 million . The asset impairment charge was recorded as Reed Minerals long-lived asset impairment charge in the Consolidated Statement of Operations for the year ended December 31, 2014 and relates exclusively to the NACoal segment.
(2)
During 2012, the Company spun-off Hyster-Yale, a former subsidiary. The results of operations of Hyster-Yale are reflected as discontinued operations in the table above for 2012.

The following table identifies the components of change for 2014 compared with 2013 by subsidiary:
 
Revenues
 
Operating profit (loss)
 
Net income (loss)
2013
$
932,666

 
$
61,336

 
$
44,450

Increase (decrease) in 2014
 
 
 
 
 
NACoal
(20,949
)
 
(126,491
)
 
(82,903
)
HBB
11,893

 
(5,188
)
 
(1,949
)
KC (net of eliminations)
(26,828
)
 
3,257

 
1,910

NACCO and Other

 
777

 
374

2014
$
896,782

 
$
(66,309
)
 
$
(38,118
)

38



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

CONSOLIDATED INCOME TAXES

The Company’s income tax provision includes U.S. federal, state and local, and foreign income taxes. In determining the effective income tax rate, the Company analyzes various factors, including the Company’s annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the effective income tax rate.
A reconciliation of the Company's consolidated federal statutory and effective income tax is as follows for the years ended December 31:
 
2014
 
2013
 
2012
Income (loss) from continuing operations before income tax provision (benefit)
$
(76,573
)
 
$
55,720

 
$
58,028

Statutory taxes (benefit) at 35.0%
$
(26,801
)
 
$
19,502

 
$
20,310

Discrete items:
 
 
 
 
 
NACoal valuation allowance
5,742

 

 

NACoal settlements
(1,360
)
 

 

HBB settlements
(1,533
)
 

 

NACCO and other settlements

 
116

 
(459
)
Tax law changes

 
(503
)
 

Provision to return adjustments
(867
)
 
(330
)
 
(305
)
Other, net
(414
)
 
(721
)
 

 
1,568

 
(1,438
)
 
(764
)
Other permanent items:
 
 
 
 
 
Percentage depletion
(7,091
)
 
(8,008
)
 
(5,157
)
State income taxes
(6,361
)
 
1,106

 
1,568

Federal credits
(529
)
 
(941
)
 
(132
)
Non-deductible expenses
632

 
1,081

 
1,112

Domestic production deduction
(522
)
 
(603
)
 
(724
)
Foreign tax rate differential
225

 
(27
)
 
(279
)
Other, net
424

 
598

 
(69
)
 
(13,222
)
 
(6,794
)
 
(3,681
)
Income tax provision (benefit)
$
(38,455
)
 
$
11,270

 
$
15,865

Effective income tax rate
50.2
%
 
20.2
%
 
27.3
%
NACoal: During 2014, NACoal recorded a valuation allowance of $5.7 million against its Alabama state deferred tax assets as realization was determined to no longer meet the “more likely than not” standard. The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods. The tax net operating losses which comprise the Alabama deferred tax assets provide for a carryforward period of up to 15 years. Partially offsetting the valuation allowance, NACoal recognized a $1.4 million discrete tax benefit resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations and a $0.5 million favorable return to provision adjustment in 2014.
HBB: During 2014, HBB's effective income tax rate was affected by the reversal of a $1.4 million uncertain tax position as a result of the effective settlement of certain state tax issues resulting in a discrete tax benefit.
See Note 15 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.


39



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

THE NORTH AMERICAN COAL CORPORATION

NACoal mines and markets steam and metallurgical coal for use in power generation and steel production and provides selected value-added mining services for other natural resources companies. Coal is surface mined from NACoal's developed mines in North Dakota, Texas, Mississippi, Louisiana and Alabama. Total coal reserves approximate 2.0 billion tons with approximately 1.1 billion tons committed to customers pursuant to long-term contracts.

NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Reed Minerals, Inc. ("Reed Minerals"). NACoal also provides dragline mining services for independently owned limerock quarries in Florida. NACoal has the following wholly owned unconsolidated subsidiaries that each meet the definition of a variable interest entity and are accounted for using the equity method:

The Coteau Properties Company (“Coteau”)
The Falkirk Mining Company (“Falkirk”)
The Sabine Mining Company (“Sabine”)
Demery Resources Company, LLC (“Demery”)
Caddo Creek Resources Company, LLC (“Caddo Creek”)
Coyote Creek Mining Company, LLC (“Coyote Creek”)
Camino Real Fuels, LLC (“Camino Real”)
Liberty Fuels Company, LLC (“Liberty”)
NoDak Energy Services, LLC ("NoDak")
See “Item 1. Business — A. North American Coal — General" on page 2 in this Form 10-K for further discussion of each of the consolidated mining operations and unconsolidated subsidiaries.

FINANCIAL REVIEW
Tons of coal sold by NACoal’s operating mines were as follows for the years ended December 31 (in millions):
 
2014
 
2013
 
2012
Coteau
14.3

 
13.8

 
13.1

Falkirk
7.8

 
7.7

 
8.0

Sabine
4.5

 
4.3

 
3.8

Other
0.1

 
0.1

 
0.1

Unconsolidated mines
26.7

 
25.9

 
25.0

MLMC
2.6

 
3.2

 
3.1

Reed Minerals
0.9

 
0.8

 
0.3

Consolidated mines
3.5

 
4.0

 
3.4

Total tons sold
30.2

 
29.9

 
28.4

The limerock dragline mining operations mined 21.0 million , 22.1 million and 18.8 million cubic yards of limerock for the years ended December 31, 2014 , 2013 and 2012 , respectively.
Total coal reserves were as follows at December 31 :
 
2014
 
2013
 
2012
 
(in billions of tons)
Unconsolidated mines
1.0

 
1.0

 
1.0

Consolidated mines
1.0

 
1.2

 
1.2

Total coal reserves
2.0

 
2.2

 
2.2


40



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Operating Results
The results of operations for NACoal were as follows for the years ended December 31 :
 
2014
 
2013
 
2012
Revenue - consolidated mines
$
161,964

 
$
172,532

 
$
118,066

Royalty and other
10,738

 
21,119

 
14,301

Revenues
172,702

 
193,651

 
132,367

Cost of sales - consolidated mines
174,135

 
166,881

 
102,224

Cost of sales - royalty and other
1,706

 
1,540

 
2,145

Total cost of sales
175,841

 
168,421

 
104,369

Gross profit (loss)
(3,139
)
 
25,230

 
27,998

Earnings of unconsolidated mines (a)
48,396

 
46,429

 
45,244

Selling, general and administrative expenses
32,905

 
27,118

 
33,999

Reed Minerals long-lived asset impairment charge
105,119

 

 

Reed Minerals goodwill impairment charge

 
3,973

 

Amortization of intangibles
3,242

 
3,668

 
2,802

Gain on sale of assets
(6,979
)
 
(561
)
 
(6,798
)
Operating profit (loss)
(89,030
)
 
37,461

 
43,239

Interest expense
6,034

 
3,105

 
2,909

Other, net, including interest income and income from other unconsolidated affiliates
(779
)
 
(1,032
)
 
(1,477
)
Income (loss) from continuing operations before income tax provision (benefit)
(94,285
)
 
35,388

 
41,807

Income tax provision (benefit)
(43,308
)
 
3,462

 
9,037

Net income (loss)
$
(50,977
)
 
$
31,926

 
$
32,770

 
 
 
 
 
 
Effective income tax rate  (b) (c)
n/m

 
9.8
%
 
21.6
%
(a) See Note 20 for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.
(b) The NACoal effective income tax rate is affected by the benefit of percentage depletion. The effective income tax rate in 2012 is higher than the effective income tax rate in 2013 primarily due to a shift in mix of taxable income towards entities with a higher effective income tax rate and a decrease in taxable income at entities eligible for percentage depletion.
(c) The effective income tax rate is not meaningful in 2014 as the income tax benefit amounts are not directly correlated to the pre-tax income in 2014 due to the impact of discrete tax items. See further information regarding the income taxes in the Consolidated Income Taxes discussion above and in Note 15 to the Consolidated Financial Statements.
2014 Compared with 2013
The following table identifies the components of change in revenues for 2014 compared with 2013 :
 
Revenues
2013
$
193,651

Increase (decrease) from:
 
Royalty and other income
(10,537
)
Consolidated mining operations
(10,412
)
2014
$
172,702



41



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Revenues decreased 10.8% in 2014 compared with 2013 primarily as a result of a reduction in both royalty and other income and the consolidated mining operations. The decrease in revenues at the consolidated mining operations was primarily the result of fewer tons sold at MLMC due to an increase in the number of planned and unplanned outage days at the customer's power plant in 2014 compared with 2013, slightly offset by increased reimbursable costs at the limerock dragline mining operations and an increase in revenues at Reed Minerals. The slight increase in revenues at Reed Minerals was due to an increase in tons sold and was almost completely offset by lower selling prices in 2014 compared with 2013 resulting from unfavorable metallurgical coal market conditions.

The following table identifies the components of change in operating profit (loss) for 2014 compared with 2013 .
 
Operating Profit (Loss)
2013
$
37,461

Increase (decrease) from:
 
Reed Minerals long-lived asset impairment charge
(105,119
)
Consolidated mining operations
(16,040
)
Royalty and other income
(11,823
)
Other selling, general and administrative expenses
(4,684
)
Pension curtailment in 2013
(1,587
)
Reimbursement of damage to customer-owned equipment
(1,211
)
Gain on sale of assets
6,418

Reed Minerals goodwill impairment charge in 2013
3,974

Earnings of unconsolidated mines
1,967

Earn-out change in estimate
1,614

2014
$
(89,030
)

NACoal reported an operating loss of $89.0 million in 2014 compared with operating profit of $37.5 million in 2013 , primarily as a result of the $105.1 million non-cash, long-lived asset impairment charge associated with Reed Minerals. See Note 5 , Note 6 and Note 10 to the Consolidated Financial Statements for further discussion of the Reed Minerals long-lived asset impairment charge.

In addition to the long-lived asset impairment charge, operating results at the consolidated mines decreased in 2014 compared with 2013 primarily due to increased mining costs at Reed Minerals. While productivity improved and Reed Minerals worked to reduce operating costs during the second half of 2014, productivity improvements at Reed Minerals were implemented later in 2014 than anticipated, primarily related to a delay in the startup of a new dragline. As a result of the delay, Reed Minerals experienced production shortfalls, which caused a decrease in inventory levels. Reed Minerals' results were also unfavorably affected by an increase in depreciation expense on equipment acquired during 2013 and in 2014 to improve efficiencies and productivity as well as higher repair and maintenance expense. Operating results at the consolidated mining operations were also negatively impacted by a reduction in tons sold at MLMC due to substantial increase in planned and unplanned outage days at the customer's power plant during 2014 and unfavorable costs at the limerock dragline mining operations.

Also impacting the change in operating profit (loss) is a significant reduction in royalty and other income, an increase in Selling, general and administrative expenses, the absence in 2014 compared to 2013 of a $1.6 million pre-tax pension curtailment gain and a $1.2 million charge in 2014 to reimburse a customer for damage to certain customer-owned equipment at the limerock dragline mining operations. The increase in Selling, general and administrative expenses was primarily due to the higher employee-related costs, higher professional fees and higher management fees. These items were partially offset by gains on the sale of assets and land, the absence of a goodwill impairment charge in 2014, an increase in earnings of unconsolidated mines and a change in estimate for the earn-out liability associated with Reed Minerals. The increase in earnings of unconsolidated mines mainly resulted from an increase in tons sold as well as an increase in contractual compensation levels. See Notes 6 and 10 to the Consolidated Financial Statements for a discussion of the 2013 goodwill impairment charge and Note 10 for a discussion of the earn-out liability.

42



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)


NACoal recognized a net loss of $51.0 million in 2014 compared with net income of $31.9 million in 2013 primarily due to the factors affecting operating profit (loss), increased interest expense as a result of higher debt outstanding during 2014 and a $1.1 million after-tax charge to establish an allowance against the receivable from NACC India's customer. The 2014 net loss includes the recognition of a valuation allowance of $5.7 million taken against the Alabama deferred tax assets, partially offset by a $1.4 million discrete tax benefit resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations and a $0.5 million favorable return to provision adjustment in 2014.

2013 Compared with 2012
The following table identifies the components of change in revenues for 2013 compared with 2012 :
 
Revenues
2012
$
132,367

Increase from:
 
Reed Minerals
42,451

Other consolidated mining operations
12,014

Royalty and other income
6,819

2013
$
193,651


Revenues increased 46.3% in 2013 compared with 2012 due to the Reed Minerals acquisition in August 2012, higher revenues at the other consolidated mining operations and an increase in royalty and other income. The increase at the other consolidated mining operations was primarily the result of an increase in tons delivered at MLMC due to an increase in customer requirements and increased reimbursable costs at the limerock dragline mining operations in 2013 compared with 2012 .
The following table identifies the components of change in operating profit for 2013 compared with 2012 .
 
Operating Profit
2012
$
43,239

Increase (decrease) from:
 
Reed Minerals
(14,197
)
Gain on sale of assets
(6,237
)
Reed Minerals goodwill impairment charge
(3,973
)
Royalty and other income
7,664

Other selling, general and administrative expenses
5,153

Other consolidated mining operations
3,040

Pension curtailment
1,587

Earnings of unconsolidated mines
1,185

2013
$
37,461


Operating profit decreased in 2013 compared with 2012 , primarily as a result of an operating loss at the Reed Minerals operations and a $4.0 million charge to impair the goodwill associated with the Reed Minerals acquisition as well as the absence of gains on the sale of draglines and land recorded in 2012. The operating loss at Reed Minerals was the result of lower than expected sales partially due to lower demand and lower prices for higher-quality metallurgical coal and higher mining costs. The higher mining costs were attributable to the unexpected thinning of a coal seam in an isolated area, substantial costs associated with the development of a new mining area and mining restrictions, which significantly increased hauling distances and reduced equipment and overburden removal productivity. The Company evaluated Reed Minerals during the fourth quarter of 2013 as part of its annual impairment testing cycle and determined that the goodwill associated with Reed Minerals was fully impaired.  See Notes 6 and 10 for a discussion of the goodwill impairment charge. These items were partially offset by higher royalty and other income and a reduction in other selling, general and administrative expenses, primarily due to lower employee-related expenses and acquisition costs, including professional fees, recognized in 2012 for

43



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

the Reed Minerals acquisition. Increased operating profit at the other consolidated mining operations, mainly due to improved results at MLMC, a curtailment gain of $1.6 million associated with freezing pension benefits and an increase in earnings of unconsolidated mines mainly due to increased volume also partially offset the decrease in operating profit.

Net income decreased to $31.9 million in 2013 from $32.8 million in 2012 , primarily due to the factors affecting operating profit, partially offset by a decrease in the effective income tax rate to 9.8% in 2013 from 21.6% in 2012. The effective income tax rate was higher in 2012 than the effective income tax rate in 2013 primarily due to a shift in mix of taxable income towards entities with a higher effective income tax rate and a decrease in taxable income at entities eligible for percentage depletion in 2012.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31 :
 
2014
 
2013
 
Change
Operating activities:
 
 
 
 
 
Net income (loss)
$
(50,977
)
 
$
31,926

 
$
(82,903
)
Depreciation, depletion and amortization
22,003

 
16,601

 
5,402

Deferred income taxes
(37,322
)
 
(7,338
)
 
(29,984
)
Gain on sale of assets
(6,979
)
 
(561
)
 
(6,418
)
Reed Minerals long-lived asset impairment charge
105,119

 

 
105,119

Reed Minerals goodwill impairment charge

 
3,973

 
(3,973
)
Other
7,941

 
(14,880
)
 
22,821

Working capital changes
(45,867
)
 
(196
)
 
(45,671
)
Net cash provided by (used for) operating activities
(6,082
)
 
29,525

 
(35,607
)
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(51,228
)
 
(52,748
)
 
1,520

Proceeds from the sale of assets
7,733

 
2,432

 
5,301

Cash in escrow for investment

 
(5,000
)
 
5,000

Other
(648
)
 
(869
)
 
221

Net cash used for investing activities
(44,143
)
 
(56,185
)
 
12,042

 
 
 
 
 
 
Cash flow before financing activities
$
(50,225
)
 
$
(26,660
)
 
$
(23,565
)

The $35.6 million decrease in net cash provided by (used for) operating activities was primarily the result of unfavorable working capital changes partially offset by the change in other, mainly attributable to a $25.3 million increase in accounts receivable from affiliates, partially offset by changes in timing related to intercompany taxes .  The increase in accounts receivable from affiliates is related to a receivable from Coyote Creek, an unconsolidated mine, primarily for the purchase of a dragline from NACoal and additional equipment and mine development costs.
 
In 2014 and 2013, the cash used for investing activities is primarily attributable to additional expenditures for property, plant and equipment, mainly for the refurbishment of a dragline in 2014, the purchase of a dragline in 2013 and the purchase of equipment at Reed Minerals in both years partially offset by proceeds received from the sale of assets and land. Cash used for investing activities in 2013 also included an amount placed in escrow for NACoal's investment in Midwest AgEnergy Group, LLC, which was released from escrow and invested in 2014.

44



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

 
2014
 
2013
 
Change
Financing activities:
 
 
 
 
 
Net additions to long-term debt and revolving credit agreements
$
30,601

 
$
23,620

 
$
6,981

Financing fees paid

 
(1,192
)
 
1,192

Capital contribution from NACCO
19,800

 

 
19,800

Net cash provided by financing activities
$
50,401

 
$
22,428

 
$
27,973


The change in net cash provided by financing activities was primarily due to an increase in borrowings and a capital contribution from NACCO during 2014 to fund operations and expenditures for property, plant and equipment as opposed to fewer borrowings in 2013 .

Financing Activities
NACoal has an unsecured revolving line of credit of up to $225.0 million (the “NACoal Facility”) that expires in November 2018. Borrowings outstanding under the NACoal Facility were $180.0 million at December 31, 2014 . At December 31, 2014 , the excess availability under the NACoal Facility was $44.0 million , which reflects a reduction for outstanding letters of credit of $1.0 million .

The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved. The applicable margins, effective December 31, 2014 , for base rate and LIBOR loans were 1.25% and 2.25% , respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.40% on the unused commitment at December 31, 2014 . The floating rate of interest applicable to the NACoal Facility at December 31, 2014 was 2.53% including the floating rate margin and the effect of an interest rate swap agreement.

To reduce the exposure to changes in the market rate of interest, NACoal has entered into an interest rate swap agreement for a portion of the NACoal Facility. Terms of the interest rate swap agreement require NACoal to receive a variable interest rate and pay a fixed interest rate. NACoal has interest rate swaps with notional values totaling $100.0 million at December 31, 2014 at an average fixed interest rate of 1.4% . See Note 2 and Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of NACoal's interest rate swap agreement.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of 3.50 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00 . The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 3.00 to 1.00 in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million . At December 31, 2014 , NACoal was in compliance with all covenants in the NACoal Facility.

NACoal has a demand note payable to Coteau which bears interest based on the applicable quarterly federal short-term interest rate as announced from time to time by the Internal Revenue Service. At December 31, 2014 , the balance of the note was $2.8 million and the interest rate was 0.38% .

NACoal believes funds available from cash on hand at the Company, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility in November 2018.

45



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACoal as of December 31, 2014 :
 
Payments Due by Period
Contractual Obligations
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
NACoal Facility
$
180,000

 
$
55,000

 
$

 
$

 
$
125,000

 
$

 
$

Variable interest payments on NACoal Facility
16,341

 
5,020

 
3,938

 
3,938

 
3,445

 

 

Other debt
2,807

 

 

 

 

 

 
2,807

Capital lease obligations, including principal and interest
12,736

 
1,732

 
1,732

 
1,732

 
2,022

 
1,521

 
3,997

Operating leases
24,023

 
8,667

 
6,313

 
3,328

 
2,256

 
1,236

 
2,223

Purchase and other obligations
47,382

 
47,382

 

 

 

 

 

Total contractual cash obligations
$
283,289

 
$
117,801

 
$
11,983

 
$
8,998

 
$
132,723

 
$
2,757

 
$
9,027

Not included in the table above, NACoal has a long-term liability of approximately $3.3 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2014 . At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its tax audits.
An event of default, as defined in the NACoal Facility, NACoal Notes and NACoal’s lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
NACoal’s variable interest payments are calculated based upon NACoal’s anticipated payment schedule and the December 31, 2014 base rate and applicable margins, as defined in the NACoal Facility. A 1/8% increase in the base rate would increase NACoal’s estimated total annual interest payments on the NACoal Facility by $0.6 million .
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s decisions to contribute above the minimum regulatory funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACoal does not expect to contribute to its pension plan in 2015 . NACoal maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds and expects to pay benefits of approximately $1.1 million in 2015 , approximately $0.5 million in 2016 and approximately $0.4 million per year from 2017 through 2024. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan. NACoal also expects to make payments related to its other postretirement plans of approximately $0.3 million per year from 2015 through 2024. Benefit payments beyond that time cannot currently be estimated.
NACoal has a long-term liability for mine closing reserves, primarily asset retirement obligations, of approximately $21.0 million that is not included in the table above due to the uncertainty of the timing of payments to settle this liability.
Off Balance Sheet Arrangements
NACoal has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.

46



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
 
Planned
 
Actual
 
Actual
 
2015
 
2014
 
2013
NACoal
$
24.1

 
$
51.2

 
$
52.7

Planned expenditures for 2015 include mine machinery and equipment. These expenditures are expected to be funded from internally generated funds and bank borrowings.
Capital Structure
NACoal’s capital structure is presented below:
 
December 31
 
 
 
2014
 
2013
 
Change
Cash and cash equivalents
$
203

 
$
27

 
$
176

Other net tangible assets
246,519

 
242,486

 
4,033

Intangible assets, net
50,779

 
59,685

 
(8,906
)
Net assets
297,501

 
302,198

 
(4,697
)
Total debt
(194,445
)
 
(163,843
)
 
(30,602
)
Total equity
$
103,056

 
$
138,355

 
$
(35,299
)
Debt to total capitalization
65
%
 
54
%
 
11
%
The net $4.7 million decrease in net assets is primarily due to the decrease in intangible assets, partially offset by the increase in other net tangible assets. The net increase in other net tangible assets during 2014 is primarily due to an increase in deferred taxes, accounts receivable from affiliates and intercompany taxes largely offset by a decrease in property, plant and equipment. The increase in accounts receivable from affiliates was mainly attributable to an increase in the receivable due from Coyote Creek, an unconsolidated mine, primarily for the purchase of a dragline from NACoal and additional equipment and mine development costs. The decrease in property, plant and equipment and intangible assets was due to Reed Minerals long-lived asset impairment charge recorded during the fourth quarter of 2014. See Note 5 , Note 6 and Note 10 to the Consolidated Financial Statements for further discussion of the Company's long-lived asset impairment.

Total debt increased $30.6 million mainly to fund operations and the increase in the receivable due from Coyote Creek.
Total equity decreased primarily as a result of the $51.0 million net loss in 2014 and a $4.1 million increase in accumulated other comprehensive loss in 2014, partially offset by $19.8 million of capital contributions from NACCO during 2014.
OUTLOOK

NACoal expects overall improved operating performance at its coal mining operations in 2015 compared with 2014.

At the consolidated coal mining operations, tons sold and results from operations are expected to be substantially higher than in 2014 at MLMC because no planned outages are scheduled at the customer's power plant. Two significant planned outages took place in 2014 at the plant that are not expected to reoccur in 2015.

Reed Minerals was renamed Centennial Natural Resources on January 1, 2015 for coal marketing and other operational reasons. Centennial’s operating results, cash flow before financing and EBITDA are expected to improve in 2015 compared with 2014, excluding the asset impairment charge, largely through efforts to right-size operations for expected volume levels and manage costs and capital employed. A reduction in Centennial's depreciation and amortization expense of approximately $5.0 million as a result of the asset impairment charge taken in 2014 is also expected to contribute to the improvement in 2015 results. However, operating results in 2015 at Centennial, including non-cash charges, are expected to remain in a substantial

47



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

loss position. Larger losses are expected in the first quarter of 2015 compared with the first quarter of 2014 as Centennial contends with a customer’s power plant outage and significantly fewer costs are capitalized for mine development. In the remaining three quarters of 2015, operating results are expected to improve substantially over 2014, although these improvements are expected to be partially offset by significantly higher coal processing costs in the fourth quarter to comply with a change in customer requirements related to the MATS regulations. Cash expenditures in 2015 will include required final reclamation at some mine areas where mining has concluded. Although cash flow before financing activities is expected to be significantly improved from 2014, Centennial is expected to have a marginally negative effect on NACoal’s 2015 cash flow before financing activities. The Company believes that efforts to manage the business around conservative volume expectations and manage for cash will help to position this business to take advantage of any rebound in the coal market that may occur over time.

Limerock deliveries in 2015 are expected to be lower than in 2014 as a result of reduced customer requirements, but operating results are expected to improve as a result of the absence of a $1.2 million pre-tax charge incurred in 2014 to reimburse a customer for damaged equipment. Royalty and other income is expected to decline significantly in 2015 compared with 2014.


At the unconsolidated mining operations, steam coal tons delivered in 2015 are expected to increase from 2014 based on customers' currently planned power plant operating levels and as a result of production increases at the newer mines. Demery commenced delivering coal to its customer in 2012 and full production levels are expected to be reached in 2016. Liberty commenced production in 2013 but did not deliver any coal in 2014. Production levels at Liberty are expected to increase gradually beginning in 2015 to full production of approximately 4.3 million tons of coal annually beginning in 2020. Construction of the Kemper County Energy Facility adjacent to Liberty is still ongoing, which may affect the pace of the increase in deliveries. Caddo Creek commenced delivering coal in late 2014.
    
Unconsolidated mines currently in development are expected to continue to generate modest income in 2015. The mining permit needed to commence mining operations was issued in 2013 for the Camino Real project in Texas. Camino Real expects initial deliveries in the second half of 2015, and expects to mine approximately 2.5 million to 3.0 million tons of coal annually when at full production. Coyote Creek received its mining permit in October 2014 and is developing a mine in Mercer County, North Dakota, from which it expects to deliver approximately 2.5 million tons of coal annually beginning in mid-2016.

Overall, excluding the 2014 gain on the sale of assets, 2015 income before income taxes is expected to increase significantly over 2014 adjusted income before income taxes. Cash flow before financing activities is expected to be positive, as compared with the negative cash flow before financing activities in 2014. Capital expenditures for 2015 are expected to be reduced substantially from the prior two years to $24.1 million, comprised largely of $21.0 million for replacement equipment and land at MLMC and approximately $1.7 million at Centennial. Coyote Creek, which is an unconsolidated mine, expects to complete its debt financing in the first quarter of 2015. This will allow Coyote Creek to repay its payable due to NACoal, which was $53.2 million at December 31, 2014.  NACoal has been using its revolving credit facility to finance mine development at Coyote Creek, and expects to use the repayment proceeds to pay down its revolving credit facility.

Over the longer-term, NACoal’s goal is to increase earnings of its unconsolidated mines by approximately 50% by 2017 from 2012 levels through the development and maturation of its new mines and normal escalation of contractual compensation at its existing mines. The power plant served by the MLMC, a consolidated mine, received significant improvements and upgrades in 2014 during planned power plant outages, which are expected to improve the operating performance and reliability of that power plant. NACoal is hopeful that these improvements will increase tons sold and profitability of this mining operation in 2015 and beyond, substantially above historical levels, except when planned or unplanned power plant outages occur. The outlook at Centennial is poor at this time due to low coal prices, low demand and the aforementioned regulatory challenges. NACoal is currently not prepared to forecast significant GAAP earnings at Centennial and will not until these price and demand conditions improve.


48



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

NACoal expects to continue its efforts to develop new mining projects. The company is actively pursuing domestic opportunities for new or expanded coal mining projects, but opportunities are likely to be very limited. In addition, NACoal continues to pursue additional non-coal mining opportunities, principally in aggregates.

HAMILTON BEACH BRANDS, INC.
HBB’s business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to retailers and consumers increase significantly for the fall holiday-selling season.
FINANCIAL REVIEW
Operating Results
The results of operations for HBB were as follows for the years ended December 31 :
 
2014
 
2013
 
2012
Revenues
$
559,683

 
$
547,790

 
$
521,567

Operating profit
$
35,772

 
$
40,960

 
$
35,815

Interest expense
$
1,137

 
$
1,279

 
$
2,635

Other expense
$
1,132

 
$
461

 
$
344

Net income
$
23,144

 
$
25,093

 
$
21,200

Effective income tax rate
30.9
%
 
36.0
%
 
35.4
%
2014 Compared with 2013
The following table identifies the components of change in revenues for 2014 compared with 2013 :
 
Revenues
2013
$
547,790

Increase (decrease) from:
 
Unit volume and product mix
18,736

Foreign currency
(4,681
)
Average sales price
(2,162
)
2014
$
559,683

Revenues increased 2.2% in 2014 compared with 2013 primarily due to an increase in sales of new products with higher price points, mainly in the commercial market and U.S. consumer market. The increase in revenues was partially offset by unfavorable foreign currency movements as both the Canadian dollar and Mexican peso weakened against the U.S. dollar and by lower average selling prices on comparable products sold.
Revenue for 2014 includes $1.1 million of revenue from Weston Brands from the December 16, 2014 acquisition date through December 31, 2014 .
The following table identifies the components of change in operating profit for 2014 compared with 2013 :
 
Operating Profit
2013
$
40,960

Increase (decrease) from:
 
Other selling, general and administrative expenses
(5,510
)
Foreign currency
(2,038
)
Environmental expense - Picton
(934
)
Environmental expense - Southern Pines and Mt. Airy
(808
)
Gross profit
4,102

2014
$
35,772



49



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

HBB's operating profit decreased in 2014 compared with 2013 primarily as a result of an increase in Selling, general and administrative expenses, unfavorable foreign currency movements and unfavorable changes in environmental expenses partially offset by an increase in gross profit.

Selling, general and administrative expenses increased as a result of higher professional and outside service fees, higher employee-related expenses and advertising expenses incurred to execute HBB's five strategic initiatives. Environmental expenses increased during 2014 as HBB recorded an additional $3.3 million charge for environmental investigation and remediation activities at HBB's Picton, Ontario facility as a result of an environmental study performed in 2014. During 2013, HBB recorded a $2.3 million charge to establish the liability for environmental investigation and remediation activities at the Picton, Ontario facility. Also during 2014 and 2013, HBB recorded an $0.8 million and $1.6 million reduction, respectively, in Selling, general and administrative expenses as a result of a third party's commitment to share in anticipated remediation costs at HBB's Southern Pines and Mt. Airy locations.

The increase in gross profit primarily resulted from more sales of products with higher price points and higher margins, partially offset by lower prices on comparable products sold and the absence of a favorable product liability adjustment recognized during 2013 as a result of a change in estimate.
The operating loss from Weston Brands from the December 16, 2014 acquisition date through December 31, 2014 is $0.2 million and is included in operating profit above.

Net income decreased to $23.1 million in 2014 compared with $25.1 million in 2013 primarily due to the factors affecting operating profit partially offset by the reversal of a $1.4 million uncertain tax position resulting in a discrete tax benefit.
2013 Compared with 2012
The following table identifies the components of change in revenues for 2013 compared with 2012 :
 
Revenues
2012
$
521,567

Increase (decrease) from:
 
Unit volume and product mix
30,952

Average sales price
(3,920
)
Foreign currency
(809
)
2013
$
547,790

Revenues increased 5.0% in 2013 compared with 2012 primarily due to an increase in sales of new products with higher price points, mainly in the U.S. consumer market and improved sales of commercial products, partially offset by decreases in the international consumer markets. The increase in revenues was also partially offset by lower average selling prices of products to retail customers due to an increase in promotions and unfavorable foreign currency movements in 2013 compared with 2012 as the Canadian dollar weakened against the U.S. dollar, partially offset by a strengthening of the Mexican peso.
The following table identifies the components of change in operating profit for 2013 compared with 2012 :
 
Operating Profit
2012
$
35,815

Increase (decrease) from:
 
Gross profit
13,082

Environmental expense - Southern Pines and Mt.Airy
1,615

Other selling, general and administrative expenses
(7,352
)
Environmental expense - Picton
(2,335
)
Foreign currency
135

2013
$
40,960


50



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)


HBB's operating profit increased in 2013 compared with 2012 primarily as a result of higher gross profit and a $1.6 million decrease in HBB's environmental expense related to a third party's commitment to share in environmental liabilities at HBB's Southern Pines and Mt. Airy locations. The increase in gross profit was primarily attributable to an increase in sales of new products with higher price points in 2013 compared with 2012 , partially offset by lower prices on comparable products sold. An increase in other selling, general and administrative expenses, mainly due to higher employee-related and advertising costs, and a $2.3 million charge to establish a liability for environmental investigation and remediation activities at HBB's Picton, Ontario facility also partially offset the improvement in operating profit.
Net income increased to $25.1 million in 2013 compared with $21.2 million in 2012 primarily due to the factors affecting operating profit and lower interest expense as a result of lower levels of borrowings during 2013 compared with 2012 .
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31 :
 
2014
 
2013
 
Change
Operating activities:
 
 
 
 
 
Net income
$
23,144

 
$
25,093

 
$
(1,949
)
Depreciation and amortization
2,693

 
3,475

 
(782
)
Other
1,148

 
332

 
816

Working capital changes
(8,404
)
 
11,854

 
(20,258
)
Net cash provided by operating activities
18,581

 
40,754

 
(22,173
)
 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(4,516
)
 
(2,313
)
 
(2,203
)
Acquisition of business
(25,000
)
 

 
(25,000
)
Other

 
35

 
(35
)
Net cash used for investing activities
(29,516
)
 
(2,278
)
 
(27,238
)
 
 
 
 
 
 
Cash flow before financing activities
$
(10,935
)
 
$
38,476

 
$
(49,411
)
Net cash provided by operating activities decreased $22.2 million in 2014 compared with 2013 primarily due to the change in working capital and the decrease in net income slightly offset by the change in other operating activities. The change in working capital was mainly due to larger increases in accounts receivable and inventory in 2014, less of an increase in accounts payable in 2014 compared with 2013 and a decrease in accrued payroll. The increase in accounts receivable was driven by higher sales in 2014, while the increase in inventory was driven primarily by higher sales forecasts and higher average inventory costs as a result of a shift in mix to higher-priced products. The change in accounts payable was primarily due to the favorable shift in payment terms with certain suppliers in 2013, and the decrease in accrued payroll was from increased payments in the 2014 period. The increase in other operating activities was mainly due to a change in HBB's pension liability.
The change in net cash used for investing activities was primarily due to the acquisition of Weston Brands in 2014 and an increase in expenditures for property, plant and equipment.

51



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

 
2014
 
2013
 
Change
Financing activities:
 
 
 
 
 
Net additions (reductions) to revolving credit agreements
$
35,006

 
$
(21,229
)
 
$
56,235

Cash dividends paid to NACCO
(22,300
)
 
(20,000
)
 
(2,300
)
Other
(241
)
 

 
(241
)
Net cash provided by (used for) financing activities
$
12,465

 
$
(41,229
)
 
$
53,694


The change in net cash provided by (used for) financing activities was primarily the result of higher borrowings under the HBB Facility to fund the acquisition of Weston Brands during 2014 compared with a decrease in borrowings in 2013, slightly offset by an increase in cash dividends paid to NACCO.

Financing Activities
HBB has a $115.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in July 2019. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $269.7 million as of December 31, 2014 . At December 31, 2014 , the borrowing base under the HBB Facility was $112.1 million and borrowings outstanding under the HBB Facility were $52.8 million . At December 31, 2014 , the excess availability under the HBB Facility was $59.3 million .

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate, LIBOR or bankers' acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2014 , for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50% , respectively. The applicable margins, effective December 31, 2014 , for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.00% and 1.50% , respectively. The HBB Facility also requires a fee of 0.25% per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability. The floating rate of interest applicable to the HBB Facility at December 31, 2014 was 2.50% , including the floating rate margin and the effect of the interest rate swap agreement.

To reduce the exposure to changes in the market rate of interest, HBB has entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require HBB to receive a variable interest rate and pay a fixed interest rate. HBB has interest rate swaps with notional values totaling $20.0 million at December 31, 2014 at an average fixed interest rate of 1.4% . See Note 2 and Note 9 to the Consolidated Financial Statements in this Form10-K for further discussion of HBB's interest rate swap agreements.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are discretionary to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of not less than $25.0 million . The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At December 31, 2014 , HBB was in compliance with all covenants in the HBB Facility.

HBB believes funds available from cash on hand at the Company, the HBB Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the HBB Facility in July 2019.

52



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of HBB as of December 31, 2014 :
 
Payments Due by Period
Contractual Obligations
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
HBB Facility
$
52,845

 
$

 
$

 
$

 
$

 
$
52,845

 
$

Variable interest payments on HBB Facility
9,477

 
1,835

 
1,923

 
2,089

 
2,292

 
1,338

 

Other debt
608

 

 
608

 

 

 

 

Purchase and other obligations
210,675

 
202,167

 
2,464

 
3,041

 
3,003

 

 

Operating leases
25,731

 
5,308

 
4,401

 
3,446

 
3,497

 
3,564

 
5,515

Unrecognized tax benefits
100

 
100

 

 

 

 

 

Total contractual cash obligations
$
299,436

 
$
209,410

 
$
9,396

 
$
8,576

 
$
8,792

 
$
57,747

 
$
5,515

Not included in the table above, HBB has a long-term liability of approximately $0.1 million for unrecognized tax benefits, including interest and penalties, as of December 31, 2014 . At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.
An event of default, as defined in the HBB Facility and in HBB’s operating agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s decisions to contribute above the minimum regulatory funding requirements. As a result, pension funding has not been included in the table above. HBB does not expect to contribute to its pension plans in 2015 . Pension benefit payments are made from assets of the pension plans.
Off Balance Sheet Arrangements
HBB has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
 
Planned
 
Actual
 
Actual
 
2015
 
2014
 
2013
HBB
$
9.0

 
$
4.5

 
$
2.3

Planned expenditures for 2015 are primarily for improvements to HBB’s information technology infrastructure and tooling for new products. These expenditures are expected to be funded from internally generated funds and bank borrowings.

53



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Capital Structure
HBB’s capital structure is presented below:
 
December 31
 
 
 
2014
 
2013
 
Change
Cash and cash equivalents
$
1,442

 
$
11

 
$
1,431

Other net tangible assets
85,329

 
70,700

 
14,629

Goodwill and intangible assets, net
16,295

 

 
16,295

Net assets
103,066

 
70,711

 
32,355

Total debt
(53,453
)
 
(18,447
)
 
(35,006
)
Total equity
$
49,613

 
$
52,264

 
$
(2,651
)
Debt to total capitalization
52
%
 
26
%
 
26
%

Net assets increased $32.4 million from December 31, 2013 primarily due to the acquisition of Weston Brands.

Total debt increased $35.0 million due to additional borrowings made during 2014 to fund the acquisition of Weston Brands.

Total equity decreased $2.7 million primarily attributable to $22.3 million of dividends paid to NACCO during 2014 and a $3.5 million increase in accumulated other comprehensive loss, mainly due to changes in cash flow hedging and pension, partially offset by HBB's net income of $23.1 million in 2014 .

OUTLOOK

While the economy appears to be improving, HBB's target consumer, the middle-market mass consumer, continues to struggle with financial and economic concerns. These concerns, as well as weakened consumer traffic to retail locations, are creating continued uncertainty about the ongoing strength of the retail market for small appliances. As a result, sales volumes in the middle-market portion of the U.S. small kitchen appliance market in which HBB's core brands participate are projected to grow only moderately in 2015. The Canadian retail market is expected to follow U.S. trends. Other international markets and commercial product markets in which HBB participates are also anticipated to grow moderately in 2015 compared with 2014. HBB believes the underlying market conditions in the hunting, gardening and food enthusiast markets will continue to generate increasing interest and demand in the categories in which the company's new subsidiary, Weston Brands, participates. Given these market conditions, HBB expects its sales volumes in its core small kitchen appliance business to grow more favorably than the market in 2015 due to improved placements of products. In addition, HBB believes there are a number of existing placements and market opportunities that can be secured for the Weston business. As a result, the Weston sales volumes in 2015 are expected to grow at or above the growth rate experienced by the core HBB small kitchen appliance business. Sales volumes in international and commercial product markets are anticipated to grow in 2015 compared with 2014 as a result of the company's strategic initiatives.

HBB continues to focus on strengthening its North American consumer market position through product innovation, promotions, increased placements and branding programs, together with appropriate levels of advertising for the company's highly successful and innovative product lines and its new line of Weston products. HBB expects the FlexBrew TM coffee maker, launched in late 2012, and the Hamilton Beach ® Breakfast Sandwich Maker line, launched in early 2013, to continue to gain market position. In addition, during 2015, HBB expects to expand both product lines with products offering a broader range of features. The company is continuing to introduce other innovative products and upgrades to certain products in several small appliance categories, as well as in its growing global commercial business. HBB expects the commercial business to benefit from several new products, including the Fury TM and Eclipse TM high-performance blenders, the Blend-in-Cup mixer and the PrimePour "cocktails-on-tap" machine. Finally, HBB's new Jamba ® blenders and juicing products and Wolf Gourmet ® branded products are expected to enter the market in the first half of 2015 and expand and gain market position during the remainder of 2015. These products, as well as other new product introductions in the pipeline for 2015, and the new line of Weston products, are expected to enhance both revenues and operating profit. As a result of these new

54



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

products and execution of the company's strategic initiatives, both domestically and internationally, HBB expects an increase in revenues in 2015 compared with 2014.

Overall, HBB expects full-year 2015 net income to be moderately higher than 2014. The anticipated increase in sales volumes attributable to the continued implementation and execution of HBB's strategic initiatives, along with a full year of revenue from the Weston Brands acquisition, is expected to be partially offset by a full year of operating expenses, including amortization on acquired intangibles, for Weston Brands, costs to implement HBB's strategic initiatives, increases in transportation costs and the absence of the $1.6 million tax benefit realized in 2014. In addition, the negative effects of foreign currency fluctuations are currently expected to increase modestly in 2015 compared with 2014. HBB continues to monitor both currency effects and commodity costs closely and intends to adjust product prices and product placements, as appropriate, if these costs increase more than anticipated.

Excluding the cash paid for the acquisition of Weston Brands, HBB expects cash flow before financing activities in 2015 to be higher than 2014. Capital expenditures are expected to be $9.0 million in 2015.

Longer term, HBB will work to improve return on sales through economies of scale derived from market growth and its five strategic volume growth initiatives: (1) enhancing its placements in the North America consumer business through consumer-driven innovative products and strong sales and marketing support, (2) enhancing internet sales by providing best-in-class retailer support and increased consumer content and engagement, (3) participating in the "only-the-best" market with a strong brand and broad product line, including investing in new products to be sold under the Jamba ® and Wolf Gourmet ® brand names, (4) expanding internationally in the emerging Asian and Latin American markets by increasing product offerings and expanding its distribution channels and sales and marketing capabilities and (5) achieving global Commercial market leadership through a commitment to an enhanced global product line for chains and distributors serving the global food service and hospitality markets. HBB expects to make continued progress in the execution of its strategic initiatives in 2015.

THE KITCHEN COLLECTION, LLC
KC’s business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to consumers increase significantly for the fall holiday-selling season.
FINANCIAL REVIEW
Operating Results
The results of operations for KC were as follows for the years ended December 31 :
 
2014
 
2013
 
2012
Revenues
$
168,545

 
$
196,033

 
$
224,695

Operating loss
$
(7,075
)
 
$
(10,903
)
 
$
(4,512
)
Interest expense
$
367

 
$
390

 
$
479

Other expense
$
65

 
$
70

 
$
86

Net loss
$
(4,603
)
 
$
(6,884
)
 
$
(3,087
)
Effective income tax rate
38.7
%
 
39.4
%
 
39.2
%

55



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

2014 Compared with 2013
The following table identifies the components of change in revenues for 2014 compared with 2013 :
 
Revenues
2013
$
196,033

Increase (decrease) from:
 
Closed stores
(30,467
)
KC comparable store sales
(5,491
)
LGC comparable store sales
(2,450
)
New store sales
10,639

Other
281

2014
$
168,545

Revenues decreased 14.0% in 2014 compared with 2013 primarily as a result of closing unprofitable KC and LGC stores and a decline in comparable store sales at both KC and LGC. The decrease in comparable store sales resulted from fewer customer visits, a reduction in store transactions and a decrease in the average sales transaction value at both store formats for 2014 compared with 2013 . These decreases were partially offset by sales at newly opened KC stores.
At December 31, 2014 , KC operated 237 stores compared with 272 stores at December 31, 2013 . LGC operated 11 stores at December 31, 2014 compared with 32 stores at December 31, 2013 . The Kitchen Collection ® store count does not include 5 stores at December 31, 2013 that were only open for the holiday-selling season. The company did not utilize the seasonal store format in 2014 .
The following table identifies the components of change in operating loss for 2014 compared with 2013 :
 
Operating loss
2013
$
(10,903
)
Increase (decrease) from:
 
Selling, general and administrative expenses and other
2,790

KC comparable stores
1,458

Closed stores
1,144

KC new stores
225

Lease termination penalties
(1,200
)
LGC comparable stores
(589
)
2014
$
(7,075
)
KC recognized a decreased operating loss in 2014 compared with 2013 primarily as a result of lower Selling, general and administrative expenses, mainly from a reduction in employee-related expenses and professional fees. The decrease in operating loss was also a result of a shift in sales mix to higher margin products at KC comparable stores and from closing unprofitable KC and LGC stores during the last 12 months. These improvements were partially offset by lease termination penalties as well as losses at comparable LGC stores.
KC reported a net loss of $4.6 million in 2014 compared with a net loss of $6.9 million in 2013 primarily due to the factors affecting the change in operating loss.

56



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

2013 Compared with 2012
The following table identifies the components of change in revenues for 2013 compared with 2012 :
 
Revenues
2012
$
224,695

Increase (decrease) from:
 
Closed stores
(25,865
)
KC comparable store sales
(7,069
)
LGC comparable store sales
(3,018
)
New store sales
7,054

Other
236

2013
$
196,033

Revenues decreased 12.8% in 2013 compared with 2012 primarily as a result of closing unprofitable KC and LGC stores and a decline in comparable store sales at both KC and LGC. The decrease in comparable store sales was mainly due to fewer customer visits and a reduction in store transactions at both store formats, partially offset by a higher average sale transaction value in 2013 compared with 2012 . These decreases were partially offset by sales at newly opened KC stores.
At December 31, 2013 , KC operated 272 stores compared with 261 stores at December 31, 2012 . LGC operated 32 stores at December 31, 2013 compared with 51 stores at December 31, 2012 . The Kitchen Collection ® store count does not include 5 stores and 34 stores at December 31, 2013 and December 31, 2012 , respectively, which were only open for the holiday-selling season.
The following table identifies the components of change in operating loss for 2013 compared with 2012 :
 
Operating loss
2012
$
(4,512
)
Increase (decrease) from:
 
KC comparable stores
(5,198
)
New stores
(1,095
)
Leasehold impairment charge
(421
)
Severance charges
(355
)
Lower of cost or market charge
(341
)
LGC comparable stores
(203
)
Selling, general and administrative expenses and other
681

Closed stores
541

2013
$
(10,903
)
KC recognized an increased operating loss in 2013 compared with 2012 . The operating loss in 2013 was primarily the result of reduced sales and a shift in sales mix to lower margin products at KC and LGC comparable stores and KC new stores. In addition, KC recorded impairment charges for leasehold improvements and furniture and fixtures at certain stores of $1.1 million in 2013 compared with $0.7 million in 2012 , an increase of $0.4 million in severance charges and a $0.3 million lower of cost or market inventory charge. These items were partially offset by favorable Selling, general and administrative expenses primarily due to reductions in employee-related and supplies expense.
KC reported a net loss of $6.9 million in 2013 compared with net loss of $3.1 million in 2012 primarily due to the factors affecting the change in operating loss.



57



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following tables detail the change in cash flow for the years ended December 31 :
 
2014
 
2013
 
Change
Operating activities:
 
 
 
 
 
Net loss
$
(4,603
)
 
$
(6,884
)
 
$
2,281

Depreciation
3,048

 
4,162

 
(1,114
)
Other
(943
)
 
(992
)
 
49

Working capital changes
9,595

 
(6,357
)
 
15,952

Net cash provided by (used for) operating activities
7,097

 
(10,071
)
 
17,168

 
 
 
 
 
 
Investing activities:
 
 
 
 
 
Expenditures for property, plant and equipment
(1,193
)
 
(2,150
)
 
957

Other
401

 
37

 
364

Net cash used for investing activities
(792
)
 
(2,113
)
 
1,321

 
 
 
 
 
 
Cash flow before financing activities
$
6,305

 
$
(12,184
)
 
$
18,489

Net cash provided by (used for) operating activities increased $17.2 million during 2014 compared with 2013 primarily due to the change in working capital and the decrease in the net loss in 2014 compared with 2013 . The change in working capital was primarily the result of a large decrease in inventory levels in 2014 compared with 2013 , primarily attributable to the reduction in the number of stores and KC's inventory management initiative, which resulted in less inventory per store. These increases were partially offset by a decrease in depreciation primarily due to less property, plant and equipment as fewer stores were open at December 31, 2014 , and impairment charges for leasehold improvements and furniture and fixtures in 2014 and 2013 resulted in less property, plant and equipment to depreciate.
Expenditures for property, plant and equipment decreased primarily due to the reduction in the number of stores.
 
2014
 
2013
 
Change
Financing activities:
 
 
 
 
 
Net additions (reductions) of revolving credit agreements
$
(1,460
)
 
$
1,460

 
$
(2,920
)
Financing fees paid
(92
)
 
(17
)
 
(75
)
Net cash provided by (used for) financing activities
$
(1,552
)
 
$
1,443

 
$
(2,995
)
The $3.0 million change in net cash provided by (used for) financing activities during 2014 compared with 2013 was primarily due to a decrease in borrowings outstanding under the KC revolving credit agreement at December 31, 2014 .
Financing Activities
KC has a $30.0 million secured revolving line of credit that expires in August 2017 (the “KC Facility”). The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was $50.4 million as of December 31, 2014 . At December 31, 2014 , the borrowing base and excess availability under the KC Facility were $22.6 million . KC had no borrowings outstanding under the KC Facility.

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00% as of December 31, 2014 . The KC Facility also requires a fee of 0.32% per annum on the unused commitment.

58



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)


The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve -month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve -month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $15.0 million after giving effect to such payment. At December 31, 2014 , KC was in compliance with all financial covenants in the KC Facility.

KC believes funds available from cash on hand at KC and the Company, the KC Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the KC Facility expires in August 2017.

Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of KC as of December 31, 2014 :
 
Payments Due by Period
Contractual Obligations
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Purchase and other obligations
$
23,779

 
$
23,779

 
$

 
$

 
$

 
$

 
$

Operating leases
81,320

 
20,062

 
16,203

 
12,582

 
9,598

 
6,516

 
16,359

Total contractual cash obligations
$
105,099

 
$
43,841

 
$
16,203

 
$
12,582

 
$
9,598

 
$
6,516

 
$
16,359

An event of default, as defined in KC’s operating lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.
Off Balance Sheet Arrangements
KC has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
 
Planned
 
Actual
 
Actual
 
2015
 
2014
 
2013
KC
$
1.4

 
$
1.2

 
$
2.2

Planned expenditures in 2015 for property, plant and equipment are primarily for improvements to KC’s information technology infrastructure and facility improvement. These expenditures are expected to be funded from internally generated funds and bank borrowings.

59



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

Capital Structure
KC’s capital structure is presented below.
 
December 31
 
 
 
2014
 
2013
 
Change
Cash and cash equivalents
$
5,534

 
$
781

 
$
4,753

Other net tangible assets
26,636

 
37,451

 
(10,815
)
Net assets
32,170

 
38,232

 
(6,062
)
Total debt

 
(1,460
)
 
1,460

Total equity
$
32,170

 
$
36,772

 
$
(4,602
)
Debt to total capitalization
(a)

 
(a)

 
(a)

(a) Debt to total capitalization is not meaningful.

Other net tangible assets decreased $10.8 million from December 31, 2013 primarily due to a decrease in inventory and property, plant and equipment, partially offset by a decrease in accounts payable, all primarily from the decrease in the number of stores open at December 31, 2014 compared with December 31, 2013 .

OUTLOOK

Consumer traffic to all mall locations, and particularly outlet malls, remained weak in 2014 and that weakness is expected to continue in 2015. The middle-market consumer remains under pressure as a result of financial and economic concerns despite an economy which is improving. These factors are expected to continue to limit consumer spending levels for KC's target customer in 2015. KC expects continued market softness in 2015. In this context, KC expects to close an additional 28 stores in 2015, with most of those stores closing in the first quarter as it, in large measure, completes its program of closing underperforming stores to realign the business around core stores which perform with acceptable profitability. KC plans to maintain a lower number of stores in 2015 and, as a result, expects 2015 revenues to decrease compared with 2014.

The net effect of closing additional stores early in 2015 and the anticipated opening of a small number of new stores, mostly during the second half of 2015, as well as the ongoing evaluation of the company's expense structure, are expected to produce net income near break-even in 2015. Further, KC believes its remaining core stores will be well-positioned to take advantage of any upturn in consumer traffic. Cash flow before financing activities is expected to be positive again in 2015, but down from the high level generated in 2014. Capital expenditures are expected to be $1.4 million in 2015.

Longer term, KC plans to focus on comparable store sales growth around a solid core store portfolio. KC expects to accomplish this by enhancing sales volume and profitability through continued refinement of its formats and ongoing review of specific product offerings, merchandise mix, store displays and appearance, while continuing to improve inventory efficiency. Increasing sales of higher-margin products will continue to be a key focus. The company will also continue to evaluate and, as lease contracts permit, close or restructure leases for underperforming and loss-generating stores. In the near term, KC expects to add stores cautiously and focus its growth on its core Kitchen Collection ® stores, with new stores expected to be positioned in optimum locations in strong outlet malls.


60



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

NACCO AND OTHER
NACCO and Other includes the parent company operations and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of NACCO. Although Bellaire’s operations are immaterial, it has long-term liabilities related to closed mines, primarily from former Eastern U.S. underground coal mining activities.
FINANCIAL REVIEW
Operating Results
The results of operations at NACCO and Other were as follows for the years ended December 31 :
 
2014
 
2013
 
2012
Revenues
$

 
$

 
$

Operating loss
$
(5,456
)
 
$
(6,233
)
 
$
(7,000
)
Other expense, including closed mine obligations
$
2,284

 
$
1,547

 
$
4,583

Net loss
$
(5,344
)
 
$
(5,718
)
 
$
(7,681
)

2014 Compared with 2013

NACCO and Other recognized a decreased operating loss in 2014 compared with 2013 . The decrease in the operating loss was primarily due higher management fees charged to the subsidiaries partially offset by higher employee-related expenses. The increase in employee-related expenses was the result of a prior period accounting error detected in 2014. As a result of the error, the Company recorded a $1.1 million charge included in Selling, general and administrative expenses in NACCO and Other related to an increase in the estimated liability for certain frozen deferred compensation plans. See Note 18 to the Consolidated Financial Statements in this Form 10-K for further discussion of this error.

NACCO and Other recognized an increase in Other expense primarily due to revisions of estimated cash flows for the Bellaire asset retirement obligation.

NACCO and Other recognized a net loss of $5.3 million in 2014 compared with a net loss of $5.7 million in 2013 primarily due to the factors affecting the operating loss and other (income) expense.

2013 Compared with 2012

NACCO and Other recognized a decreased operating loss in 2013 compared with 2012 . The decrease in the operating loss was primarily due to a decrease in employee-related expenses partially offset by a reduction in management fees charged to the subsidiaries', both as a result of the spin-off of Hyster-Yale.

NACCO and Other recognized a decrease in other (income) expense primarily due to revisions of estimated cash flows for the Bellaire asset retirement obligation.

NACCO and Other recognized a net loss of $5.7 million in 2013 compared with a net loss of $7.7 million in 2012 primarily due to the items affecting other (income) expense.

Hyster-Yale Spin-Off

On September 28, 2012, the Company completed the spin-off of Hyster-Yale, a former subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock or Class B common stock they owned. As a result of the spin-off, the financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for 2012 in the Consolidated Financial Statements.


61



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

In connection with the spin-off of Hyster-Yale, NACCO and Other recognized expenses of $3.4 million, $3.0 million after-tax, in 2012 which are reflected as discontinued operations in the Consolidated Statements of Operations.

Stock Repurchase Programs

See, "Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" and Note 14 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's stock repurchase programs.

Management Fees

The management fees charged to operating subsidiaries represent an allocation of corporate overhead of the parent company. Management fees are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary. The Company believes the allocation method is consistently applied and reasonable.
Following are the parent company management fees included in each subsidiary’s Selling, general and administrative expenses for the years ended December 31 :
 
2014
 
2013
 
2012
NACoal
$
4,521

 
$
3,136

 
$
4,135

HBB
$
3,714

 
$
3,424

 
$
2,491

KC
$
260

 
$
250

 
$
250

LIQUIDITY AND CAPITAL RESOURCES
Although NACCO’s subsidiaries have entered into borrowing agreements, NACCO has not guaranteed any borrowings of its subsidiaries. The borrowing agreements at NACoal, HBB and KC allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by its subsidiaries’ borrowing agreements), advances and management fees from its subsidiaries are the primary sources of cash for NACCO.
The Company believes funds available from cash on hand, its subsidiaries’ credit facilities and anticipated funds generated from its subsidiaries operations are sufficient to finance all of its subsidiaries scheduled principal repayments, operating needs and commitments arising during the next twelve months and until the expiration of its subsidiaries’ credit facilities.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACCO and Other as of December 31, 2014 :
Contractual Obligations
Total
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
Operating leases
$
2,491

 
$
279

 
$
279

 
$
279

 
$
279

 
$
279

 
$
1,096

Income taxes payable
3,670

 
3,670

 

 

 

 

 

Purchase and other obligations
5,223

 
5,223

 

 

 

 

 

Total contractual cash obligations
$
11,384

 
$
9,172

 
$
279

 
$
279

 
$
279

 
$
279

 
$
1,096

Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s funding decisions to contribute any excess above the minimum legislative funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACCO does not expect to contribute to its pension plan during 2015 . NACCO and Other maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds. Annual benefit payments are expected to be less than $0.1 million per year over the next ten years. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan.
The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.

62



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

NACCO and Other has a long-term liability for mine closing reserves, primarily asset retirement obligations, of $16.4 million that is not included in the table above due to the uncertainty of the timing of payments to settle these liabilities.
Off Balance Sheet Arrangements
NACCO has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Structure
NACCO’s consolidated capital structure is presented below:
 
December 31
 
 
 
2014
 
2013
 
Change
Cash and cash equivalents
$
61,135

 
$
95,390

 
$
(34,255
)
Other net tangible assets
346,704

 
341,483

 
5,221

Goodwill and intangible assets, net
67,074

 
59,685

 
7,389

Net assets
474,913

 
496,558

 
(21,645
)
Total debt
(247,898
)
 
(183,750
)
 
(64,148
)
Closed mine obligations, net of tax
(15,540
)
 
(15,028
)
 
(512
)
Total equity
$
211,475

 
$
297,780

 
$
(86,305
)
Debt to total capitalization - continuing operations
54
%
 
38
%
 
16
%

RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting Standards Adopted in 2014: In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which includes amendments that change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization's operations and financial results - should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company adopted this guidance during the first quarter of 2014.  The adoption did not have an effect on the Company’s financial position, results of operations, cash flows or related disclosures.

Accounting Standards Not Yet Adopted: In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently assessing the impact of implementing this guidance on the Company's financial position, results of operations, cash flows and related disclosures.  

In August 2014, the FASB issued ASU No. 2014-15, "Preparation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that financial statements are issued.  ASU 2014-15 is effective

63



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted. The Company does not expect the adoption of this guidance to have an effect on the Company's financial position, results of operations, cash flows or related disclosures.
EFFECTS OF FOREIGN CURRENCY
HBB operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The effects of foreign currency on operating results at HBB is discussed above. The Company’s use of foreign currency derivative contracts is discussed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of this Form 10-K.
ENVIRONMENTAL MATTERS
The Company’s previous manufacturing operations, like those of other companies engaged in similar businesses, involved the use, disposal and cleanup of substances regulated under environmental protection laws. The Company’s NACoal and Bellaire subsidiaries are affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the U.S. Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition, NACoal and Bellaire closely monitor proposed legislation concerning SMCRA, CAA, reauthorization of the Resource Conservation and Recovery Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act and other regulatory actions.
Compliance with these increasingly stringent standards could result in higher expenditures for both capital improvements and operating costs. The Company’s policies stress environmental responsibility and compliance with these regulations. Based on current information, management does not expect compliance with these regulations to have a material adverse effect on the Company’s financial condition or results of operations. See Item 1 in Part I of this Form 10-K for further discussion of these matters.
FORWARD-LOOKING STATEMENTS
The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties with respect to each subsidiary's operations include, without limitation:

NACoal: (1) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (2) changes in the demand for and market prices of metallurgical and steam coal produced at the Centennial (formerly known as Reed Minerals) operations, (3) changes in costs related to geological conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (4) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (5) weather conditions, extended power plant outages or other events that would change the level of customers' coal or limerock requirements, (6) weather or equipment problems that could affect deliveries to customers, (7) changes in the power industry that would affect demand for NACoal's reserves, (8) changes in the costs to reclaim current NACoal mining areas, (9) costs to pursue and develop new mining opportunities, (10) changes or termination of a long-term mining contract, or a customer default under a contract and (11) increased competition, including consolidation within the industry.

HBB: (1) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances, (2) changes in consumer retail and credit markets, (3) bankruptcy of or loss of major retail customers or suppliers, (4) changes in costs, including transportation costs, of sourced products, (5) delays in delivery of sourced products, (6) changes in or unavailability of quality or cost effective suppliers, (7) exchange rate fluctuations, changes in the foreign import tariffs and monetary policies and other changes in the regulatory climate in the foreign countries in which HBB buys, operates and/or sells products, (8) product liability, regulatory actions or other litigation, warranty claims or returns of products, (9) customer acceptance of, changes in costs of, or delays in the development of new products, (10) the successful integration of

64



Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except as Noted and Per Share and Percentage Data)

the Weston Brands acquisition, (11) increased competition, including consolidation within the industry and (12) changes mandated by federal, state and other regulation, including health, safety or environmental legislation.

KC: (1) changes in gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the number of customers visiting Kitchen Collection ® and Le Gourmet Chef ® stores, (2) changes in the sales prices, product mix or levels of consumer purchases of kitchenware, small electric appliances and gourmet foods, (3) changes in costs, including transportation costs, of inventory, (4) delays in delivery or the unavailability of inventory, (5) customer acceptance of new products, (6) the anticipated impact of the opening of new stores, the ability to renegotiate existing leases and effectively and efficiently close under-performing stores and (7) increased competition.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's subsidiaries, NACoal, HBB and KC, have entered into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's financial results are subject to changes in the market rate of interest. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. To reduce the exposure to changes in the market rate of interest, NACoal and HBB have entered into interest rate swap agreements for a portion of its floating rate financing arrangements. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require the subsidiaries to receive a variable interest rate and pay a fixed interest rate. See Note 2 and Note 9 to the Consolidated Financial Statements in this Form10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. The Company assumes that a loss in fair value is an increase to its liabilities. The fair value of the Company's interest rate swap agreements was a payable of $0.2 million at December 31, 2014 . A hypothetical 10% decrease in interest rates would cause a decrease of $0.6 million in the fair value of interest rate swap agreements and the resulting fair value would be a payable of $0.8 million .
FOREIGN CURRENCY EXCHANGE RATE RISK
HBB operates internationally and enters into transactions denominated in foreign currencies, principally the Canadian dollar, the Mexican peso and, to a lesser extent, the Chinese yuan and Brazilian real. As such, HBB's financial results are subject to the variability that arises from exchange rate movements. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of revenues, expenses, assets and liabilities. The potential impact of currency fluctuation increases as international expansion increases.
HBB uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within twelve months and require HBB to buy or sell the functional currency in which the applicable subsidiary operates and buy or sell U.S. dollars at rates agreed to at the inception of the contracts. See Note 2 and Note 9 to the Consolidated Financial Statements in this Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. The fair value of the Company's foreign currency exchange contracts was a net receivable of $0.3 million at December 31, 2014 . Assuming a hypothetical 10% weakening of the U.S. dollar compared with the Canadian dollar at December 31, 2014 , the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by $1.0 million compared with its fair value at December 31, 2014 . It is important to note that the change in fair value indicated in this sensitivity analysis would be somewhat offset by changes in the fair value of the underlying receivables and payables.
COMMODITY PRICE RISK
The Company uses certain commodities, including steel and diesel fuel, in the normal course of its mining processes. As such, the cost of operations is subject to variability as the market for these commodities changes. The Company monitors this risk

65


and, from time to time, enters into derivative contracts to hedge this risk. The Company does not currently have any such derivative contracts outstanding, nor does the Company have any significant purchase obligations to obtain fixed quantities of commodities in the future.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of this Form 10-K and is hereby incorporated herein by reference to such information.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with accountants on accounting and financial disclosure for the three-year period ended December 31, 2014 .

Item 9A . CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures: An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective. Management has excluded Weston Brands from its assessment of the Company's disclosure controls and procedures because it was acquired on December 16, 2014.
Management's report on internal control over financial reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control — Integrated Framework (2013 framework), management concluded that the Company's

66


internal control over financial reporting was effective as of December 31, 2014 . As noted above in our evaluation of disclosure controls and procedures, management has excluded Weston Brands from its assessment of the effectiveness of the Company's internal control over financial reporting.  Weston Brands represented 3.6% of the Company's total assets as of December 31, 2014 and 0.1% of revenues for the year ended December 31, 2014. The Company's effectiveness of internal control over financial reporting as of December 31, 2014 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 15 of this Form 10-K and incorporated herein by reference.
Changes in internal control: There have been no changes in the Company's internal control over financial reporting, that occurred during the fourth quarter of 2014 , that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company acquired Weston Brands on December 16, 2014, and is currently in the process of integrating Weston Brands operations, processes and internal controls. See Note 21 to the Consolidated Financial Statements for additional information regarding the acquisition.
Item 9B . OTHER INFORMATION
None.

67


PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to Directors of the Company will be set forth in the 2015 Proxy Statement under the subheadings “Proposals To Be Voted On At The 2015 Annual Meeting — Proposal 1 — Election of Directors — Director Nominee Information,” which information is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the 2015 Proxy Statement under the subheading “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 2015 Proxy Statement under the subheading “Other Important Information — Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included in this Form 10-K as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Company has adopted a code of business conduct and ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar functions. The code of business conduct and ethics, entitled the “Code of Corporate Conduct,” is posted on the Company's website at www.nacco.com under “Corporate Governance.”
Item 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be set forth in the 2015 Proxy Statement under the heading “Executive Compensation Information” and subheadings “Proposals To Be Voted On At The 2015 Annual Meeting — Proposal 1 — Election of Directors— Director Compensation,” which information is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information with respect to security ownership of certain beneficial owners and management will be set forth in the 2015 Proxy Statement under the subheading “Other Important Information — Beneficial Ownership of Class A Common and Class B Common,” which information is incorporated herein by reference.
Information with respect to compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance will be set forth in the 2015 Proxy Statement under the subheading “Other Important Information — Equity Compensation Plan Information," which information is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information with respect to certain relationships and related transactions will be set forth in the 2015 Proxy Statement under the subheadings “Corporate Governance Information — Directors' Meetings and Committees” and “— Certain Business Relationships,” which information is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to principal accountant fees and services will be set forth in the 2015 Proxy Statement under the heading “Proposals To Be Voted On At The 2015 Annual Meeting — Proposal 4 — Ratification of the Appointment of Ernst & Young LLP as the Company's Independent Registered Public Accounting Firm for 2015,” which information is incorporated herein by reference.


68


PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) The response to Item 15(a)(1) and (2) is set forth beginning at page F-1 of this Form 10-K.
(a) (3) Listing of Exhibits — See the exhibit index beginning at page X-1 of this Form 10-K.
(b) The response to Item 15(b) is set forth beginning at page X-1 of this Form 10-K.
(c) Financial Statement Schedules — The response to Item 15(c) is set forth beginning at page F-49 of this Form 10-K.


69


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
NACCO Industries, Inc.
 
 
 
By:  
/s/ Elizabeth I. Loveman
 
 
 
Elizabeth I. Loveman
 
 
 
Vice President and Controller
(principal financial and accounting officer)
 
 
 
 
 

March 9, 2015


70


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Alfred M. Rankin, Jr.
 
Chairman, President and Chief Executive Officer (principal executive officer), Director
March 9, 2015
Alfred M. Rankin, Jr.
 
 
 
 
 
 
 
/s/ Elizabeth I. Loveman
 
Vice President and Controller (principal financial and accounting officer)
March 9, 2015
Elizabeth I. Loveman
 
 
 
 
 
 
* Scott S. Cowen
 
Director
March 9, 2015
Scott S. Cowen
 
 
 
 
 
 
 
* John P. Jumper
 
Director 
March 9, 2015
John P. Jumper
 
 
 
 
 
 
 
* Dennis W. LaBarre
 
Director 
March 9, 2015
Dennis W. LaBarre
 
 
 
 
 
 
 
* Richard de J. Osborne
 
Director 
March 9, 2015
Richard de J. Osborne
 
 
 
 
 
 
 
* James A. Ratner
 
Director 
March 9, 2015
James A. Ratner
 
 
 
 
 
 
 
* Britton T. Taplin
 
Director 
March 9, 2015
Britton T. Taplin
 
 
 
 
 
 
 
* David F. Taplin
 
Director 
March 9, 2015
David F. Taplin
 
 
 
 
 
 
 
* David B. H. Williams
 
Director 
March 9, 2015
David B. H. Williams
 
 
 

 
* Elizabeth I. Loveman, by signing her name hereto, does hereby sign this Form 10-K on behalf of each of the above named and designated directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission.

/s/ Elizabeth I. Loveman
 
March 9, 2015
Elizabeth I. Loveman, Attorney-in-Fact 
 
 


71


ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 15(a)(1) AND (2), AND ITEM 15(c)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 2014
NACCO INDUSTRIES, INC.
CLEVELAND, OHIO


F-1


FORM 10-K
ITEM 15(a)(1) AND (2)
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries, Inc. and Subsidiaries are incorporated by reference in Item 8:
The following consolidated financial statement schedules of NACCO Industries, Inc. and Subsidiaries are included in Item 15(c):
 
 
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.


F-2


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.

We have audited the accompanying consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries (collectively “the Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NACCO Industries, Inc. and Subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 9, 2015 expressed an unqualified opinion thereon.
 
 
 
/s/ Ernst & Young LLP
Cleveland, Ohio
 
 
 
March 9, 2015
 
 
 


F-3


Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.

We have audited NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). NACCO Industries, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying management’s report on internal control over financial reporting in Item 9A of the Form 10‑K. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, NACCO Industries, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014 based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), cash flows and equity for each of the three years in the period ended December 31, 2014 of NACCO Industries, Inc. and Subsidiaries, and our report dated March 9, 2015 expressed an unqualified opinion thereon.
 
 
 
/s/ Ernst & Young LLP
Cleveland, Ohio
 
 
 
March 9, 2015
 
 
 


F-4


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
Year Ended December 31
 
2014
 
2013
 
2012
 
(In thousands, except per share data)
Revenues
$
896,782

 
$
932,666

 
$
873,364

Cost of sales
711,710

 
711,375

 
647,422

Gross profit
185,072

 
221,291

 
225,942

Earnings of unconsolidated mines
48,396

 
46,429

 
45,244

Operating expenses
 
 
 
 
 
Selling, general and administrative expenses
198,697

 
199,331

 
207,553

Reed Minerals long-lived asset impairment charge
105,119

 

 

Reed Minerals goodwill impairment charge

 
3,973

 

Amortization of intangible assets
3,300

 
3,668

 
2,802

Gain on sale of assets
(7,339
)
 
(588
)
 
(6,811
)
 
299,777

 
206,384

 
203,544

Operating profit (loss)
(66,309
)
 
61,336

 
67,642

Other expense (income)
 
 
 
 
 
Interest expense
7,566

 
4,775

 
6,088

Income from other unconsolidated affiliates
(161
)
 
(1,432
)
 
(1,552
)
Closed mine obligations
2,582

 
1,817

 
4,595

Other, net, including interest income
277

 
456

 
483

 
10,264

 
5,616

 
9,614

Income (loss) from continuing operations before income tax (benefit) provision
(76,573
)
 
55,720

 
58,028

Income tax provision (benefit)
(38,455
)
 
11,270

 
15,865

Income (loss) from continuing operations, net of tax
(38,118
)
 
44,450

 
42,163

Income from discontinued operations, net of tax expense of $7,599 in 2012

 

 
66,535

Net income (loss)
$
(38,118
)
 
$
44,450

 
$
108,698

 
 
 
 
 
 
Basic earnings (loss) per share:
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.48

 
$
5.04

Discontinued operations

 

 
7.93

Basic earnings (loss) per share
$
(5.02
)
 
$
5.48

 
$
12.97

 
 
 
 
 
 
Diluted earnings (loss) per share:
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.47

 
$
5.02

Discontinued operations

 

 
7.90

Diluted earnings (loss) per share
$
(5.02
)
 
$
5.47

 
$
12.92

 
 
 
 
 
 
Basic weighted average shares outstanding
7,590

 
8,105

 
8,384

Diluted weighted average shares outstanding
7,590

 
8,124

 
8,414

 
 
 
 
 
 
See notes to consolidated financial statements.

F-5


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31
 
2014
 
2013
 
2012
 
(In thousands)
Net income (loss)
$
(38,118
)
 
$
44,450

 
$
108,698

Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation adjustment
(1,896
)
 
(229
)
 
145

Deferred gain on available for sale securities
442

 
729

 
265

Current period cash flow hedging activity, net of $838 tax benefit in 2014, $477 tax expense in 2013 and $2,471 tax expense in 2012
(1,518
)
 
810

 
7,658

Reclassification of hedging activities into earnings, net of $489 tax benefit in 2014, $95 tax benefit in 2013 and $2,630 tax expense in 2012
898

 
152

 
(2,757
)
Current period pension and postretirement plan adjustment, net of $3,292 tax benefit in 2014, $5,531 tax expense in 2013 and $1,553 tax benefit in 2012
(6,483
)
 
8,022

 
(1,716
)
Curtailment gain into earnings, net of $718 tax expense in 2013

 
(983
)
 

Reclassification of pension and postretirement adjustments into earnings, net of $313 tax benefit in 2014, $740 tax benefit in 2013 and $2,056 tax benefit in 2012
627

 
1,101

 
5,885

Total other comprehensive income (loss)
$
(7,930
)
 
$
9,602

 
$
9,480

Comprehensive income (loss)
$
(46,048
)
 
$
54,052

 
$
118,178

See notes to consolidated financial statements.


F-6


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
December 31
 
2014
 
2013
 
(In thousands, except share data)
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
61,135

 
$
95,390

Accounts receivable, net of allowances of $17,327 in 2014 and $13,705 in 2013
123,466

 
120,789

Accounts receivable from affiliates
57,421

 
32,636

Inventories, net
190,382

 
184,445

Deferred income taxes
18,566

 
14,452

Prepaid expenses and other
14,743

 
13,578

Total current assets
465,713

 
461,290

Property, plant and equipment, net
159,644

 
219,256

Goodwill
6,253

 

Other intangibles, net
60,821

 
59,685

Deferred income taxes
15,806

 
595

Other non-current assets
62,283

 
69,130

Total assets
$
770,520

 
$
809,956

LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable
$
133,668

 
$
133,016

Revolving credit agreements of subsidiaries — not guaranteed by the parent company
55,000

 
23,460

Current maturities of long-term debt of subsidiaries — not guaranteed by the parent company
1,467

 
7,859

Accrued income taxes
4,015

 
8,877

Accrued payroll
23,567

 
29,030

Other current liabilities
36,964

 
35,877

Total current liabilities
254,681

 
238,119

Long-term debt of subsidiaries — not guaranteed by the parent company
191,431

 
152,431

Mine closing reserves
37,399

 
29,764

Pension and other postretirement obligations
10,616

 
7,648

Deferred income taxes

 
24,786

Other long-term liabilities
64,919

 
59,428

Total liabilities
559,046

 
512,176

Stockholders’ equity

 
 
Common stock:
 
 
 
Class A, par value $1 per share, 5,662,214 shares outstanding (2013 - 6,290,414 shares outstanding)
5,662

 
6,290

Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,573,292 shares outstanding (2013 - 1,581,106 shares outstanding)
1,573

 
1,581

Capital in excess of par value

 

Retained earnings
224,428

 
302,168

Accumulated other comprehensive income (loss)
(20,189
)
 
(12,259
)
Total stockholders’ equity
211,474

 
297,780

Total liabilities and equity
$
770,520

 
$
809,956

See notes to consolidated financial statements.

F-7


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31
 
2014
 
2013
 
2012
 
(In thousands)
Operating Activities
 
 
 
 
 
Net income (loss)
$
(38,118
)
 
$
44,450

 
$
108,698

Income from discontinued operations

 

 
66,535

Income (loss) from continuing operations
(38,118
)
 
44,450

 
42,163

 
 
 
 
 
 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
 
Depreciation, depletion and amortization
28,070

 
24,572

 
17,992

Amortization of deferred financing fees
229

 
614

 
1,118

Deferred income taxes
(41,347
)
 
(7,646
)
 
14,646

Reed Minerals long-lived asset impairment charge
105,119

 

 

Reed Minerals goodwill impairment charge

 
3,973

 

Gain on sale of assets
(7,339
)
 
(588
)
 
(6,811
)
Other
14,667

 
(14,572
)
 
13,117

Working capital changes, excluding the effect of business acquisitions:
 
 
 
 
 
Accounts receivable
(22,506
)
 
(2,779
)
 
(19,154
)
Inventories
(879
)
 
(14,871
)
 
(2,776
)
Other current assets
201

 
(802
)
 
(1,077
)
Accounts payable
(2,963
)
 
4,851

 
23,870

Other current liabilities
(15,335
)
 
15,863

 
(8,753
)
Net cash provided by operating activities of continuing operations
19,799

 
53,065

 
74,335

Net cash provided by operating activities of discontinued operations

 

 
68,679

 
 
 
 
 
 
Investing Activities
 
 
 
 
 
Expenditures for property, plant and equipment
(57,500
)
 
(57,449
)
 
(44,682
)
Acquisition of business
(25,000
)
 

 
(69,287
)
Proceeds from the sale of assets
8,134

 
2,504

 
35,974

Proceeds from note receivable

 

 
14,434

Cash payment for cost method investment

 
(5,000
)
 

Other
(568
)
 
(789
)
 
(207
)
Net cash used for investing activities of continuing operations
(74,934
)
 
(60,734
)
 
(63,768
)
Net cash used for investing activities of discontinued operations

 

 
(10,469
)
 
 
 
 
 
 
Financing Activities
 
 
 
 
 
Reductions of long-term debt
(9,399
)
 
(15,803
)
 
(62,446
)
Net additions to revolving credit agreements
73,546

 
19,654

 
82,655

Cash dividends paid
(7,755
)
 
(8,104
)
 
(45,130
)
Cash dividends received from Hyster-Yale

 

 
5,000

Purchase of treasury shares
(35,075
)
 
(31,306
)
 
(3,178
)
Financing fees paid
(333
)
 
(1,209
)
 
(1,433
)
Other
(5
)
 
(8
)
 
12

Net cash provided by (used for) financing activities of continuing operations
20,979

 
(36,776
)
 
(24,520
)
Net cash used for financing activities of discontinued operations

 

 
(98,913
)
 
 
 
 
 
 
Effect of exchange rate changes on cash of continuing operations
(99
)
 
(20
)
 
24

Effect of exchange rate changes on cash of discontinued operations

 

 
838

Cash and Cash Equivalents
 
 
 
 
 
Decrease for the year
(34,255
)
 
(44,465
)
 
(53,794
)
Net increase related to discontinued operations

 

 
39,865

Balance at the beginning of the year
95,390

 
139,855

 
153,784

Balance at the end of the year
$
61,135

 
$
95,390

 
$
139,855

See notes to consolidated financial statements.

F-8


NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
 
 
 
 
 
 
Accumulated Other Comprehensive Income (Loss)
 
 
 
 
 
 
 
Class A Common Stock
Class B Common Stock
Capital in Excess of Par Value
Retained Earnings
Foreign Currency Translation Adjustment
Deferred Gain (Loss) on Available for Sale Securities
Deferred Gain (Loss) on Cash Flow Hedging
Pension and Postretirement Plan Adjustment
Total Stockholders' Equity
Noncontrolling Interest
Total Equity
 
(In thousands, except per share data)
Balance, January 1, 2012
$
6,778

$
1,596

$
22,786

$
619,614

 
$
13,210

 
$
27

 
$
2,597

 
$
(90,398
)
 
$
576,210

 
$
882

 
$
577,092

Stock-based compensation
30


4,953


 

 

 

 

 
4,983

 

 
4,983

Purchase of treasury shares
(51
)

(3,127
)

 

 

 

 

 
(3,178
)
 

 
(3,178
)
Conversion of Class B to Class A shares
14

(14
)


 

 

 

 

 

 

 

Net income attributable to stockholders



108,698

 

 

 

 

 
108,698

 

 
108,698

Cash dividends on Class A and Class B common stock: $5.3775 per share



(45,130
)
 

 

 

 

 
(45,130
)
 

 
(45,130
)
Stock dividend



(412,955
)
 
(13,929
)
 

 
(7,784
)
 
64,936

 
(369,732
)
 
(882
)
 
(370,614
)
Current period other comprehensive income (loss)




 
145

 
265

 
7,658

 
(1,716
)
 
6,352

 

 
6,352

Reclassification adjustment to net income




 

 

 
(2,757
)
 
5,885

 
3,128

 

 
3,128

Balance, December 31, 2012
$
6,771

$
1,582

$
24,612

$
270,227


$
(574
)

$
292


$
(286
)

$
(21,293
)
 
$
281,331

 
$

 
$
281,331

Stock-based compensation
83


1,724


 

 

 

 

 
1,807

 

 
1,807

Purchase of treasury shares
(565
)

(26,336
)
(4,405
)
 

 

 

 

 
(31,306
)
 

 
(31,306
)
Conversion of Class B to Class A shares
1

(1
)


 

 

 

 

 

 

 

Net income



44,450

 

 

 

 

 
44,450

 

 
44,450

Cash dividends on Class A and Class B common stock: $1.000 per share



(8,104
)
 

 

 

 

 
(8,104
)
 

 
(8,104
)
Current period other comprehensive income (loss)




 
(229
)
 
729

 
810

 
8,022

 
9,332

 

 
9,332

Current period curtailment gain




 

 

 

 
(983
)
 
(983
)
 

 
(983
)
Reclassification adjustment to net income




 

 
 
 
152

 
1,101

 
1,253

 

 
1,253

Balance, December 31, 2013
$
6,290

$
1,581

$

$
302,168


$
(803
)

$
1,021

 
$
676


$
(13,153
)

$
297,780


$


$
297,780

Stock-based compensation
28


2,544


 

 

 

 

 
2,572

 

 
2,572

Purchase of treasury shares
(664
)

(2,544
)
(31,867
)
 

 

 

 

 
(35,075
)
 

 
(35,075
)
Conversion of Class B to Class A shares
8

(8
)


 

 

 

 

 

 

 

Net income (loss)



(38,118
)
 

 

 

 

 
(38,118
)
 

 
(38,118
)
Cash dividends on Class A and Class B common stock: $1.0225 per share



(7,755
)
 

 

 

 

 
(7,755
)
 

 
(7,755
)
Current period other comprehensive income (loss)




 
(1,896
)
 
442

 
(1,518
)
 
(6,483
)
 
(9,455
)
 

 
(9,455
)
Reclassification adjustment to net income (loss)




 

 

 
898

 
627

 
1,525

 

 
1,525

Balance, December 31, 2014
$
5,662

$
1,573

$

$
224,428


$
(2,699
)

$
1,463

 
$
56


$
(19,009
)

$
211,474


$


$
211,474

See notes to consolidated financial statements.

F-9



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)


NOTE 1— Principles of Consolidation and Nature of Operations

The Consolidated Financial Statements include the accounts of NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries (“NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. The Company's subsidiaries operate in the following principal industries: mining, small appliances and specialty retail. The Company manages its subsidiaries primarily by industry.

The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) mine and market steam and metallurgical coal for use in power generation and steel production and provide selected value-added mining services for other natural resources companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware operating under the Kitchen Collection ® and Le Gourmet Chef ® store names in outlet and traditional malls throughout the United States. On September 28, 2012, the Company spun-off Hyster-Yale Materials Handling, Inc. ("Hyster-Yale"), a former subsidiary. The financial position, results of operations and cash flows of Hyster-Yale are reflected as discontinued operations for all periods presented through the date of the spin-off. See Note 3 for further details regarding the spin-off.

NACoal has two consolidated mining operations: Mississippi Lignite Mining Company (“MLMC”) and Reed Minerals, Inc. ("Reed Minerals"). NACoal also provides dragline mining services for independently owned limerock quarries in Florida. NACoal has the following wholly owned unconsolidated subsidiaries that each meet the definition of a variable interest entity and are accounted for using the equity method:

The Coteau Properties Company (“Coteau”)
The Falkirk Mining Company (“Falkirk”)
The Sabine Mining Company (“Sabine”)
Demery Resources Company, LLC (“Demery”)
Caddo Creek Resources Company, LLC (“Caddo Creek”)
Coyote Creek Mining Company, LLC (“Coyote Creek”)
Camino Real Fuels, LLC (“Camino Real”)
Liberty Fuels Company, LLC (“Liberty”)
NoDak Energy Services, LLC ("NoDak")

The unconsolidated subsidiaries, with the exception of NoDak (collectively the "Unconsolidated Mines"), were formed to develop, construct and operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. Coteau, Falkirk, Sabine, Liberty and Coyote supply lignite coal for power generation. Demery and Caddo Creek supply lignite coal for the production of activated carbon. Camino Real supplies sub- bituminous coal for power generation. NoDak operates and maintains a coal processing facility.

Coteau, Falkirk and Sabine were developed between 1974 and 1981. Demery commenced delivering coal to its customer in 2012 and full production levels are expected to be reached in 2016. Liberty commenced production in 2013 but did not deliver any coal in 2014. Production levels are expected to increase gradually beginning in 2015 to full production of approximately 4.3 million tons of coal annually beginning in 2020. Construction of the Kemper County Energy Facility adjacent to Liberty is still ongoing, which may affect the pace of the increase in deliveries. Caddo Creek commenced delivering coal in late 2014. Camino Real expects initial deliveries in the second half of 2015, and expects to mine approximately 2.5 million to 3.0 million tons of coal annually when at full production. Coyote Creek received its mining permit in October 2014 and is developing a mine in Mercer County, North Dakota, from which it expects to deliver approximately 2.5 million tons of coal annually beginning in mid-2016.

The contracts with the customers of the Unconsolidated Mines provide for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. Although NACoal owns 100% of the equity and manages the daily operations of these entities, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The customers have a controlling financial interest and have the power to direct the activities that most significantly

F-10



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

affect the economic performance of the entities. As a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities' financial position or results of operations. The income taxes resulting from operations of the Unconsolidated Mines are solely the responsibility of the Company. The pre-tax income from the Unconsolidated Mines, excluding NoDak, is reported on the line “Earnings of unconsolidated mines” in the Consolidated Statements of Operations, with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Mines, excluding NoDak, above operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "Income from other unconsolidated affiliates" in the "Other (income) expense" section of the Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes. The Unconsolidated Mines are accounted for under the equity method. See Note 20 for further discussion.

North American Coal Corporation India Private Limited ("NACC India") was formed to provide technical business advisory services to the third-party owner of a coal mine in India.  During 2014, NACC India's customer defaulted on its contractual payment obligations and as a result of this default, NACC India has terminated its contract with the customer and is pursuing contractual remedies. As a result of this default, NACoal recognized a $1.1 million after-tax charge to establish an allowance against the receivable from NACC India's customer. Prior to contract termination, NACC India met the definition of a variable interest entity of which NACoal was not the primary beneficiary and was accounted for using the equity method with net income or loss reported on the line "(Income) loss from other unconsolidated affiliates" in the "Other expense (income)" section of the Consolidated Statements of Operations. Subsequent to contract termination, NACC India is no longer a variable interest entity and its financial position and results of operations are consolidated by NACoal as of the contract termination date. 

NOTE 2— Significant Accounting Policies

Use of Estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities (if any) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less.
Accounts Receivable, Net of Allowances: Allowances for doubtful accounts are maintained against accounts receivable for estimated losses resulting from the inability of customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. Accounts are written off against the allowance when it becomes evident collection will not occur.
Inventories: Inventories are stated at the lower of cost or market. The weighted average method is used for coal inventory. KC retail inventories are stated at the lower of cost or market using the retail inventory method. The first-in, first-out (“FIFO”) method is used with respect to all other inventories. Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs.
Property, Plant and Equipment, Net: Property, plant and equipment are initially recorded at cost. Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under capital leases, over their estimated useful lives using the straight-line method. Buildings and building improvements are depreciated using a 40 year life or, at NACoal, over the life of the mine, which is 30 years. Estimated lives for machinery and equipment range from three to 15 years . Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. The units-of-production method is used to amortize certain tooling for sourced products and certain coal-related assets based on estimated recoverable tonnages. Repairs and maintenance costs are generally expensed when incurred. Asset retirement costs associated with asset retirement obligations are capitalized with the carrying amount of the related long-lived asset and depreciated over the asset's estimated useful life.
Long-Lived Assets: The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of

F-11



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

the long-lived asset exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Coal Supply Agreement: The coal supply agreement represents a long-term supply agreement with NACoal's customer and was recorded based on the fair value at the date of acquisition. The coal supply agreement is amortized based on units of production over the term of the agreement, which is estimated to be 30 years . The Company reviews identified intangible assets for impairment when changes in circumstances or the occurrence of certain events indicate potential impairment.
Self-insurance Liabilities: The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers’ compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term.
Revenue Recognition: Revenues are generally recognized when title transfers and risk of loss passes to the customer. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered or services are performed. Revenues at HBB are recognized when customer orders are completed and shipped. Revenues at KC are recognized at the point of sale when payment is made and customers take possession of the merchandise in stores.
The Company's products generally are not sold with the right of return. Based on the Company's historical experience, a portion of KC and HBB products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer, which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of the sale based upon this historical experience and the limited right of return provided to the Company's customers.
The Company also records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. Additionally, the Company provides for the estimated cost of product warranties at the time revenues are recognized. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales.
Advertising Costs: Advertising costs, except for direct response advertising, are expensed as incurred. Total advertising expense was $20.4 million , $20.1 million and $16.5 million in 2014 , 2013 and 2012 , respectively. Included in these advertising costs are amounts related to cooperative advertising programs at HBB that are recorded as a reduction of sales in the Consolidated Statements of Operations as related revenues are recognized. Direct response advertising, which consists primarily of costs to produce television commercials for HBB products, is capitalized and amortized over the expected period of future benefits. No assets related to direct response advertising were capitalized at December 31, 2014 or 2013 .
Product Development Costs: Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. These costs amounted to $9.6 million , $8.1 million and $7.5 million in 2014 , 2013 and 2012 , respectively.
Shipping and Handling Costs: Shipping and handling costs billed to customers are recognized as revenue and shipping and handling costs incurred by the Company are included in cost of sales.
Taxes Collected from Customers and Remitted to Governmental Authorities: The Company collects various taxes and fees as an agent in connection with the sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis in the Consolidated Statements of Operations and are recorded as a liability until remitted to the respective taxing authority.
Stock Compensation: The Company maintains long-term incentive programs at all of its subsidiaries. The parent company has stock compensation plans that allow the grant of shares of Class A common stock, subject to restrictions, as a means of retaining and rewarding selected employees for long-term performance and to increase ownership in the Company. Shares awarded under the plans are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends at the earliest of (i)  five years after the participant's retirement date, (ii)  ten years from the award date, or (iii) the participant's death or permanent disability. Pursuant to the plans, the Company issued 32,591 and 16,123 shares related to the years ended December 31, 2014 and 2013 , respectively. After the issuance of these shares, there were 201,168 shares of Class A common

F-12



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

stock available for issuance under these plans. Compensation expense related to these share awards was $1.8 million ( $1.2 million net of tax), $0.9 million ( $0.6 million net of tax) and $4.4 million ( $2.8 million net of tax) for the years ended December 31, 2014 , 2013 and 2012 , respectively. Compensation expense represents fair value based on the market price of the shares of Class A common stock at the grant date.
The Company also has a stock compensation plan for non-employee directors of the Company under which a portion of the non-employee directors’ annual retainer is paid in restricted shares of Class A common stock. For the years ended December 31, 2014 , December 31, 2013 and December 31, 2012 , $69,000 of the non-employee directors’ annual retainer of $125,000 was paid in restricted shares of Class A common stock. Shares awarded under the plan are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends at the earliest of (i)  ten years from the award date, (ii) the date of the director's death or permanent disability, (iii)  five years (or earlier with the approval of the Board of Directors) after the director's date of retirement from the Board of Directors, or (iv) the date of the participant's retirement from the Board of Directors and the director has reached 70 years of age. Pursuant to this plan, the Company issued 10,446 , 9,472 and 8,944 shares related to the years ended December 31, 2014 , 2013 and 2012 , respectively. In addition to the mandatory retainer fee received in restricted stock, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees, committee retainer and any committee chairman's fees. These voluntary shares are not subject to any restrictions. Total shares issued under voluntary elections were 1,335 in 2014 , 1,300 in 2013 , and 1,991 in 2012 . After the issuance of these shares, there were 61,261 shares of Class A common stock available for issuance under this plan. Compensation expense related to these awards was $0.6 million ( $0.4 million net of tax), $0.6 million ( $0.4 million net of tax) and $0.8 million ( $0.5 million net of tax) for the years ended December 31, 2014 , 2013 and 2012 , respectively. Compensation expense represents fair value based on the market price of the shares of Class A common stock at the grant date.
Foreign Currency: Assets and liabilities of foreign operations are translated into U.S. dollars at the fiscal year-end exchange rate. The related translation adjustments are recorded as a separate component of stockholders’ equity. Revenues and expenses of all foreign operations are translated using average monthly exchange rates prevailing during the year.
Financial Instruments and Derivative Financial Instruments: Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, revolving credit agreements, long-term debt, interest rate swap agreements and forward foreign currency exchange contracts. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes.
The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the subsidiaries’ functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”). Deferred gains or losses are reclassified from AOCI to the Consolidated Statement of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.
The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are predominately based upon the three-month LIBOR (London Interbank Offered Rate). Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in AOCI. Deferred gains or losses are reclassified from AOCI to the Consolidated Statement of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other income (expense)” section of the Consolidated Statements of Operations.
Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.

F-13



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Other” in the “Other income (expense)” section of the Consolidated Statements of Operations.
Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations.
See Note 9 for further discussion of derivative financial instruments.
Fair Value Measurements: The Company accounts for the fair value measurement of its financial assets and liabilities in accordance with U.S. generally accepted accounting principles, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available.
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
See Note 10 for further discussion of fair value measurements.

Recently Issued Accounting Standards

Accounting Standards Adopted in 2014: In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which includes amendments that change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization's operations and financial results - should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company adopted this guidance during the first quarter of 2014.  The adoption did not have an effect on the Company’s financial position, results of operations, cash flows or related disclosures.

Accounting Standards Not Yet Adopted: In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently assessing the impact of implementing this guidance on the Company's financial position, results of operations, cash flows and related disclosures.  

In August 2014, the FASB issued ASU No. 2014-15, "Preparation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures.  Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every reporting period, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that financial statements are issued.  ASU 2014-15 is effective

F-14



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

for fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted. The Company does not expect the adoption of this guidance to have an effect on the Company's financial position, results of operations, cash flows or related disclosures.

NOTE 3— Other Transactions

NACoal : During the fourth quarter of 2014, NACoal's long-lived asset evaluation resulted in the Company recording a non-cash, asset impairment charge of $105.1 million on the line Reed Minerals long-lived asset impairment charge in the Consolidated Statements of Operations. See Note 5 , Note 6 and Note 10 for further discussion of the Company's long-lived asset impairment.

During 2014, NACoal recognized a gain of $3.5 million from the sale of assets to Mississippi Power Company. These assets were previously classified as held for sale. Also during 2014, NACoal recognized an unrelated gain of $2.2 million from the sale of land.

During 2013, NACoal acquired the equipment of National Coal of Alabama, Inc. ("NCOA") in exchange for the assumption of outstanding debt. The outstanding debt was repaid concurrently with the acquisition of the equipment utilizing borrowings under NACoal's existing unsecured revolving line of credit. During 2014, NACoal acquired coal reserves and prepaid royalties and assumed certain reclamation obligations of NCOA. See Note 21 for further discussion of the NCOA acquisition.

During 2013, NACoal recorded a cash outflow for investing activities for $5.0 million for a cost method investment, which is included in "Other non-current assets" on the Consolidated Balance Sheet at December 31, 2014 and 2013.

On August 31, 2012, NACoal acquired Reed Minerals, which is based in Jasper, Alabama and is involved in the mining of steam and metallurgical coal. The results of Reed Minerals operations have been included in the Company's consolidated financial statements since the date of acquisition.

During 2012, NACoal sold two draglines for $31.2 million and recognized a gain on the sale of one dragline of $3.3 million . These assets were previously reported as held for sale on the Consolidated Balance Sheet. Also during 2012, NACoal recognized a gain of $3.5 million from the sale of land.

Included in "Accounts receivable from affiliates" on the Consolidated Balance Sheet is $ 53.2 million and $27.9 million as of December 31, 2014 and December 31, 2013 , respectively, due from Coyote Creek, an unconsolidated mine, primarily for the purchase of a dragline from NACoal.

HBB: During 2014, HBB completed the acquisition of Weston Products, LLC, which HBB refers to as Weston Brands, in exchange for cash consideration of $25.4 million , o f which $25.0 million was paid at closing. The final purchase price is subject to customary post-closing adjustments based on net working capital and EBITDA calculations. The net working capital and EBITDA adjustment is estimated to be $0.4 million and will be paid in 2015. As a result of the 2014 Weston Brands acquisition, HBB now markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston ® brand as well as several private label brands. The results of Weston Brands operations have been included in the Company's Consolidated Financial Statements since December 16, 2014. See Note 21 for further discussion of the Weston acquisition.

Hyster-Yale Spin-Off: On September 28, 2012, the Company spun-off Hyster-Yale, a former subsidiary. To complete the spin-off, the Company distributed one share of Hyster-Yale Class A common stock and one share of Hyster-Yale Class B common stock to NACCO stockholders for each share of NACCO Class A common stock or Class B common stock owned. In accordance with the applicable authoritative accounting guidance, the Company accounted for the spin-off based on the carrying value of Hyster-Yale.

As a result of the spin-off, the results of operations and cash flows of Hyster-Yale are reflected as discontinued operations through the date of the spin-off in the Consolidated Financial Statements.


F-15



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

In connection with the spin-off of Hyster-Yale, NACCO and Other recognized expenses of $3.4 million , $3.0 million after-tax, for the year ended December 31, 2012, which is reflected as discontinued operations in the Consolidated Statements of Operations.

NOTE 4— Inventories

Inventories are summarized as follows:
 
December 31
 
2014
 
2013
Coal - NACoal
$
29,576

 
$
24,710

Mining supplies - NACoal
19,774

 
17,406

Total inventories at weighted average cost
49,350

 
42,116

Sourced inventories - HBB
104,746

 
90,713

Retail inventories - KC
36,286

 
51,616

Total inventories at FIFO
141,032

 
142,329

 
$
190,382

 
$
184,445


NOTE 5— Property, Plant and Equipment, Net

Property, plant and equipment, net includes the following:
 
December 31
 
2014
 
2013
Coal lands and real estate:
 
 
 
NACoal
$
54,228

 
$
83,736

HBB
226

 
226

NACCO and Other
469

 

 
54,923

 
83,962

Plant and equipment:
 
 
 
NACoal
146,994

 
180,418

HBB
49,579

 
45,141

KC
26,152

 
28,615

NACCO and Other
4,655

 
4,552

 
227,380

 
258,726

Property, plant and equipment, at cost
282,303

 
342,688

Less allowances for depreciation, depletion and amortization
122,659

 
123,432

 
$
159,644

 
$
219,256

Total depreciation, depletion and amortization expense on property, plant and equipment was $24.8 million , $20.9 million and $15.2 million during 2014 , 2013 , and 2012 , respectively.

NACoal's long-lived asset evaluation during 2014 resulted in the Company recording a non-cash, impairment charge with respect to its Reed Minerals mining operations asset group of $105.1 million recorded on the line Reed Minerals long-lived asset impairment charge in the Consolidated Statements of Operations, of which $99.4 million was for Reed Minerals' Property, Plant and Equipment. The fair value of the asset group was calculated using the combination of a market and income approach and reduced the carrying value of coal land and real estate to $7.2 million and other property, plant and equipment to $37.1 million . See Note 10 for further discussion of this nonrecurring fair value measurement.

KC's long-lived asset evaluations during 2014, 2013 and 2012 resulted in the Company recording an impairment charge of $0.9 million , $1.1 million and $0.7 million , respectively, in depreciation expense for leasehold improvements and furniture and

F-16



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

fixtures as projected future cash flows were not sufficient to recover the net carrying value of these assets. See Note 10 for further discussion of these nonrecurring fair value measurements.

Proven and probable coal reserves, excluding the Unconsolidated Mines, approximated 1.0 billion tons (unaudited) at December 31, 2014 and 1.2 billion tons (unaudited) at December 31, 2013 . These tons are reported on an "as received by the customer basis" and are the equivalent of “demonstrated reserves” under the coal resource classification system of the U.S. Geological Survey. Generally, these reserves would be commercially mineable at year-end prices and cost levels, using current technology and mining practices.

NOTE 6— Intangible Assets
During 2014 , HBB acquired Weston Brands for a preliminary purchase price of $25.4 million . Of the preliminary purchase price, $10.1 million was allocated to identifiable intangible assets, including customer relationships of $5.8 million , trademarks of $3.1 million and other intangibles of $1.2 million . Preliminary goodwill is $6.3 million . See Note 21 for further discussion of the Weston Brands acquisition.
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net
Balance
Balance at December 31, 2014
 
 
 
 
 
NACoal:
 
 
 
 
 
Coal supply agreements
$
84,200

 
$
(33,421
)
 
$
50,779

Other intangibles

 

 

 
$
84,200

 
$
(33,421
)
 
$
50,779

 
 
 
 
 
 
HBB:
 
 
 
 
 
Customer relationships
$
5,760

 
$
(40
)
 
$
5,720

Trademarks
3,100

 
(8
)
 
3,092

Other intangibles
1,240

 
(10
)
 
1,230

 
$
10,100

 
$
(58
)
 
$
10,042

 
 
 
 
 
 
Balance at December 31, 2013
 
 
 
 
 
NACoal:
 
 
 
 
 
Coal supply agreements
$
91,480

 
$
(32,492
)
 
$
58,988

Other intangibles
950

 
(253
)
 
697


$
92,430

 
$
(32,745
)
 
$
59,685

Amortization expense for intangible assets was $3.3 million , $3.7 million and $2.8 million in 2014 , 2013 and 2012 , respectively.
NACoal's long-lived asset evaluation during 2014 resulted in the Company recording a non-cash, impairment charge with respect to its Reed Minerals mining operations asset group of $105.1 million recorded on the line Reed Minerals long-lived asset impairment charge in the Consolidated Statements of Operations, of which $5.7 million was for intangible assets. The fair value of the intangible assets was calculated using an income approach and reduced the carrying value of the Reed Minerals' intangible assets to zero . See Note 10 for further discussion of this nonrecurring fair value measurement.
Expected annual amortization expense of NACoal's coal supply agreement for the next five years is as follows: $2.7 million in 2015 and 2016 , $2.8 million in 2017 , 2018 and 2019 , respectively. The coal supply agreement is amortized based on units of production over the term of the agreement, which is estimated to be 30  years.
Expected annual amortization expense of HBB's intangible assets for the next five years is $1.4 million in 2015, 2016, 2017, 2018 and 2019. The weighted average amortization period for HBB's intangible assets is approximately 9 years .


F-17



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

NOTE 7— Asset Retirement Obligations

NACoal's asset retirement obligations are principally for costs to dismantle certain mining equipment at the end of the life of the mine as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. The Company determined the amounts of these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation and is recorded in the line “Cost of sales” in the accompanying Consolidated Statements of Operations. The associated asset is recorded in “Property, Plant and Equipment, net” in the accompanying Consolidated Balance Sheets.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted the amounts using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation and is recorded in the line “Closed mine obligations” in the accompanying Consolidated Statements of Operations. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized.

In connection with Bellaire's normal permit renewal with the Pennsylvania Department of Environmental Protection ("DEP"), Bellaire was notified during 2004 that in order to obtain renewal of the permit Bellaire would be required to establish a mine water treatment trust (the "Mine Water Treatment Trust"). On October 1, 2010, Bellaire executed a Post-Mining Treatment Trust Consent Order and Agreement with the DEP which established the Mine Water Treatment Trust to provide a financial assurance mechanism in order to assure the long-term treatment of post-mining discharges. Bellaire funded the Mine Water Treatment Trust with $5.0 million . The fair value of the Mine Water Treatment assets are $7.2 million at December 31, 2014 and are legally restricted for purposes of settling the Bellaire asset retirement obligation. See Note 10 for further fair value disclosure.
A reconciliation of the beginning and ending aggregate carrying amount of the asset retirement obligations are as follows:
 
NACoal
 
Bellaire
 
NACCO
Consolidated
Balance at January 1, 2013
$
15,070

 
$
16,416

 
$
31,486

Liabilities settled during the period
(316
)
 
(1,243
)
 
(1,559
)
Accretion expense
735

 
1,161

 
1,896

Revision of estimated cash flows

 
592

 
592

Balance at December 31, 2013
$
15,489

 
$
16,926

 
$
32,415

Liabilities acquired during the period
7,297

 

 
7,297

Liabilities settled during the period
(381
)
 
(1,128
)
 
(1,509
)
Accretion expense
379

 
1,183

 
1,562

Revision of estimated cash flows
1,448

 
606

 
2,054

Balance at December 31, 2014
$
24,232

 
$
17,587

 
$
41,819

The revision of estimated cash flows for the year ended December 31, 2014 is due to reclamation of Reed mines.


F-18



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

NOTE 8— Current and Long-Term Financing

Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not guaranteed any borrowings of its subsidiaries.
The following table summarizes the Company's available and outstanding borrowings:
 
December 31
 
2014
 
2013
Total outstanding borrowings:
 
 
 
Revolving credit agreements:
 
 
 
NACoal
$
180,000

 
$
140,000

HBB
52,845

 
18,447

KC

 
1,460

 
$
232,845

 
$
159,907

 
 
 
 
Capital lease obligations and other term loans — NACoal
$
14,445

 
$
17,414

Private Placement Notes — NACoal

 
6,429

Other debt — HBB
608

 

Total debt outstanding
$
247,898

 
$
183,750

 
 
 
 
Current portion of borrowings outstanding:
 
 
 
NACoal
$
56,467

 
$
29,859

KC

 
1,460

 
$
56,467

 
$
31,319

Long-term portion of borrowings outstanding:
 
 
 
NACoal
$
137,978

 
$
133,984

HBB
53,453

 
18,447

 
$
191,431

 
$
152,431

Total available borrowings, net of limitations, under revolving credit agreements:
 
 
 
NACoal
$
223,995

 
$
223,936

HBB
112,105

 
111,584

KC
22,596

 
27,000

 
$
358,696

 
$
362,520

Unused revolving credit agreements:
 
 
 
NACoal
$
43,995

 
$
83,936

HBB
59,260

 
93,137

KC
22,596

 
25,540

 
$
125,851

 
$
202,613

Weighted average stated interest rate on total borrowings:
 
 
 
NACoal
2.5
%
 
2.3
%
HBB
2.0
%
 
3.2
%
KC
N/A

 
4.3
%
 
 
 
 
Weighted average effective interest rate on total borrowings (including interest rate swap agreements):
 
 
 
NACoal
3.1
%
 
3.0
%
HBB
2.5
%
 
3.2
%
KC
N/A

 
N/A


F-19



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Annual maturities of total debt, excluding capital leases, are as follows:
2015
$
55,000

2016
608

2017

2018
125,000

2019
55,652

Thereafter

 
$
236,260

Interest paid on total debt was $7.4 million , $5.3 million and $5.5 million during 2014 , 2013 and 2012 , respectively. Interest capitalized was $0.3 million and $0.5 million in 2014 and 2013 and respectively.
NACoal: NACoal has an unsecured revolving line of credit of up to $225.0 million (the “NACoal Facility”) that expires in November 2018. Borrowings outstanding under the NACoal Facility were $180.0 million at December 31, 2014 . At December 31, 2014 , the excess availability under the NACoal Facility was $44.0 million , which reflects a reduction for outstanding letters of credit of $1.0 million .

The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved. The applicable margins, effective December 31, 2014 , for base rate and LIBOR loans were 1.25% and 2.25% , respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.40% on the unused commitment at December 31, 2014 . The weighted average interest rate applicable to the NACoal Facility at December 31, 2014 was 2.53% including the floating rate margin and excluding the effect of the interest rate swap agreements.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of 3.50 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 3.00 to 1.00 in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million . At December 31, 2014 , NACoal was in compliance with all financial covenants in the NACoal Facility.

NACoal has a demand note payable to Coteau, one of the unconsolidated subsidiaries, which bears interest based on the applicable quarterly federal short-term interest rate as announced from time to time by the Internal Revenue Service. At December 31, 2014 , the balance of the note was $2.8 million and the interest rate was 0.38% .

NACoal incurred fees and expenses of $1.2 million in the year ended December 31, 2013 related to the NACoal Facility. These fees were deferred and are being amortized as interest expense in the Consolidated Statements of Operations over the term of the NACoal Facility. No similar fees were incurred in 2014 and 2012.
HBB: HBB has a $115.0 million senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in July 2019. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was $269.7 million as of December 31, 2014 . At December 31, 2014 , the borrowing base under the HBB Facility was $112.1 million and borrowings outstanding were $52.8 million . At December 31, 2014 , the excess availability under the HBB Facility was $59.3 million .

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate or LIBOR, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective December 31, 2014 , for base rate loans and LIBOR loans denominated in U.S. dollars were 0.00% and 1.50% , respectively. The applicable margins, effective December 31, 2014 ,

F-20



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

for base rate loans and bankers' acceptance loans denominated in Canadian dollars were 0.00% and 1.50% , respectively. The HBB Facility also requires a fee of 0.25% per annum on the unused commitment. The margins under the HBB Facility are subject to quarterly adjustment based on average excess availability. The weighted average interest rate applicable to the HBB Facility at December 31, 2014 was 2.50% including the floating rate margin and the effect of the interest rate swap agreement.

The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are discretionary to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains Excess Availability of not less than $25.0 million . The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At December 31, 2014 , HBB was in compliance with all financial covenants in the HBB Facility.

HBB incurred fees and expenses of $0.2 million and $1.2 million in the years ended December 31, 2014 and December 31, 2012, respectively, related to the HBB Facility. These fees were deferred and are being amortized as interest expense in the Consolidated Statements of Operations over the term of the HBB Facility. No similar fees were incurred in 2013.
KC: KC has a $30.0 million secured revolving line of credit that expires in September 2019 (the “KC Facility”). The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was $50.4 million as of December 31, 2014 . At December 31, 2014 , the borrowing base and excess availability under the KC Facility were $22.6 million . KC had no borrowings outstanding under the KC Facility as of December 31, 2014 .

The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of 1.00% or LIBOR plus a margin of 2.00% as of December 31, 2014 . The KC Facility also requires a fee of 0.32% per annum on the unused commitment.

The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i) $6.0 million in any twelve -month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of 1.1 to 1.0, as defined in the KC Facility; (ii) $2.0 million in any twelve -month period, so long as KC has excess availability, as defined in the KC Facility, of at least $7.5 million after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of $15.0 million after giving effect to such payment. At December 31, 2014 , KC was in compliance with all financial covenants in the KC Facility.

KC incurred fees and expenses of $0.1 million and $0.2 million in the years ended December 31, 2014 and December 31, 2012, respectively, related to the KC Facility. These fees were deferred and are being amortized as interest expense in the Consolidated Statements of Operations over the term of the KC Facility. No similar fees were incurred in 2013.

NOTE 9— Derivative Financial Instruments

The Company measures its derivatives at fair value on a recurring basis using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation.
Foreign Currency Derivatives : HBB held forward foreign currency exchange contracts with total notional amounts of $7.2 million and $5.0 million at December 31, 2014 and December 31, 2013 , respectively, denominated primarily in Canadian dollars. The fair value of these contracts approximated a net receivable of $0.3 million and $0.1 million at December 31, 2014 and 2013 , respectively.
Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are

F-21



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

considered effective as hedges has been included in AOCI. Based on market valuations at December 31, 2014 , $0.1 million of the amount included in AOCI is expected to be reclassified as income into the Consolidated Statement of Operations over the next twelve months, as the hedged transactions occur.
Interest Rate Derivatives : HBB has interest rate swaps that hedge interest payments on its one-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of interest rate swap agreements active at December 31 in millions:
 
Notional Amount
 
Average Fixed Rate
 
Remaining Term at
 
2014
 
2013
 
2014
 
2013
 
December 31, 2014
HBB
$
20.0

 
$
20.0

 
1.4
%
 
1.4
%
 
extending to January 2020
The fair value of HBB's interest rate swap agreements was a net receivable of $0.2 million and $0.8 million at December 31, 2014 and 2013 , respectively. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in AOCI. Based on market valuations at December 31, 2014 , less than $0.1 million of the amount included in AOCI is expected to be reclassified as income into the Consolidated Statement of Operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreements. The interest rate swap agreements held by HBB on December 31, 2014 are expected to continue to be effective as hedges.
NACoal has interest rate swaps that hedge interest payments on its one-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of the interest rate swap agreement active at December 31 in millions:
 
Notional Amount
 
Average Fixed Rate
 
Remaining Term at
 
2014
 
2013
 
2014
 
2013
 
December 31, 2014
NACoal
$
100.0

 
$
100.0

 
1.4
%
 
1.4
%
 
extending to May 2018
The fair value of NACoal's interest rate swap agreement was a net payable of $0.4 million at December 31, 2014 . The mark-to-market effect of the interest rate swap agreement that is considered effective as a hedge has been included in AOCI. Based on market valuations at December 31, 2014 , $0.8 million of the amount included in AOCI is expected to be reclassified as income into the Consolidated Statement of Operations over the next twelve months, as cash flow payments are made in accordance with the interest rate swap agreement. The interest rate swap agreement held by NACoal on December 31, 2014 is expected to continue to be effective as a hedge.



F-22



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The following table summarizes the fair value of derivative instruments at December 31 as recorded in the Consolidated Balance Sheets:
 
Asset Derivatives
 
Liability Derivatives
 
Balance sheet location
 
2014
 
2013
 
Balance sheet location
 
2014
 
2013
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 
$
39

 
$
128

 
Other current liabilities
 
$
121

 
$

Long-term
Other non-current assets
 
142

 
809

 
Other long-term liabilities
 
291

 

Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 
292

 
83

 
Other current liabilities
 

 

Long-term
Other non-current assets
 

 

 
Other long-term liabilities
 

 

Total derivatives designated as hedging instruments
 
 
$
473

 
$
1,020

 
 
 
$
412

 
$

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
 
 
 
 
 
 
 
 
 
 
Current
Prepaid expenses and other
 
$

 
$

 
Prepaid expenses and other
 
$

 
$
14

Total derivatives not designated as hedging instruments
 
 
$

 
$

 
 
 
$

 
$
14

Total derivatives
 
 
$
473

 
$
1,020

 
 
 
$
412

 
$
14

 
 
 
 
 
 
 
 
 
 
 
 
The following table summarizes the pre-tax impact of derivative instruments for each year ended December 31 as recorded in the Consolidated Statements of Operations:
Derivatives in Cash Flow Hedging Relationships
 
Amount of Gain or (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
 
Location of Gain or
(Loss) Reclassified
from AOCI into
Income (Effective
Portion)
 
Amount of Gain or (Loss)
Reclassified from AOCI
into Income (Effective Portion)
 
Location of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion and Amount
Excluded from
Effectiveness
Testing)
 
Amount of Gain or (Loss) Recognized
in Income on Derivative
 (Ineffective Portion and Amount Excluded from
Effectiveness Testing)
 
 
2014
 
2013
 
2012
 
 
 
2014
 
2013
 
2012
 
 
 
2014
 
2013
 
2012
Interest rate swap agreements
 
$
(2,664
)
 
$
933

 
$
(138
)
 
Interest expense
 
$
(1,495
)
 
$
(460
)
 
$
(1,207
)
 
N/A
 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
308

 
354

 
(282
)
 
Cost of sales
 
108

 
213

 
87

 
N/A
 

 

 

Total
 
$
(2,356
)
 
$
1,287

 
$
(420
)
 
 
 
$
(1,387
)
 
$
(247
)
 
$
(1,120
)
 
 
 
$

 
$

 
$

 
 
 
 
Amount of Gain or (Loss)
Recognized in Income on Derivative
Derivatives Not Designated as Hedging Instruments
 
Location of Gain or (Loss) Recognized in Income on Derivative
 
2014
 
2013
 
2012
Foreign currency exchange contracts
 
Cost of sales or Other
 
$
25

 
$
(14
)
 
$
(162
)
Total
 
 
 
$
25

 
$
(14
)
 
$
(162
)


F-23



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

NOTE 10— Fair Value Disclosure

Recurring Fair Value Measurements : The following table presents the Company's assets and liabilities accounted for at fair value on a recurring basis:

 
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
 
Active Markets for
 
Significant Other
 
Unobservable
 
 
 
 
Identical Assets
 
Observable Inputs
 
Inputs
Description
 
December 31, 2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Available for sale securities
 
$
7,220

 
$
7,220

 
$

 
$

Interest rate swap agreements
 
181

 

 
181

 

Foreign currency exchange contracts
 
292

 

 
292

 

 
 
$
7,693

 
$
7,220

 
$
473

 
$

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap agreements
 
$
412

 
$

 
$
412

 
$

 
 
$
412

 
$

 
$
412

 
$


 
 
 
 
Fair Value Measurements at Reporting Date Using
 
 
 
 
Quoted Prices in
 
 
 
Significant
 
 
 
 
Active Markets for
 
Significant Other
 
Unobservable
 
 
 
 
Identical Assets
 
Observable Inputs
 
Inputs
Description
 
December 31, 2013
 
(Level 1)
 
(Level 2)
 
(Level 3)
Assets:
 
 
 
 
 
 
 
 
Available for sale securities
 
$
6,540

 
$
6,540

 
$

 
$

Interest rate swap agreements
 
937

 

 
937

 

Foreign currency exchange contracts
 
83

 

 
83

 

 
 
$
7,560

 
$
6,540

 
$
1,020

 
$

Liabilities:
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
$
14

 
$

 
$
14

 
$

Contingent consideration
 
1,581

 

 

 
1,581

 
 
$
1,595

 
$

 
$
14

 
$
1,581


Bellaire's Mine Water Treatment Trust invests in available for sale securities that are reported at fair value based upon quoted market prices in active markets for identical assets; therefore, they are classified as Level 1 within the fair value hierarchy. See Note 7 for further discussion of Bellaire's Mine Water Treatment Trust.

The Company uses significant other observable inputs to value derivative instruments used to hedge foreign currency and interest rate risk; therefore, they are classified within Level 2 of the valuation hierarchy. The fair value for these contracts is determined based on exchange rates and interest rates, respectively. See Note 9 for further discussion of the Company's derivative financial instruments.

The valuation techniques and Level 3 inputs used to estimate the fair value of contingent consideration payable in connection with the Company's acquisition of Reed Minerals are described below.

There were no transfers into or out of Levels 1, 2 or 3 during the year ended December 31, 2014 .

F-24



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The following table summarizes changes in Level 3 liabilities measured at fair value on a recurring basis:

 
 
 
Contingent Consideration
Balance at
December 31, 2013
 
$
1,581

Change in estimate
 
(1,614
)
Accretion expense
 
33

Balance at
December 31, 2014
 
$


NACoal acquired Reed Minerals on August 31, 2012 for a purchase price of approximately $70.9 million , which included contingent consideration initially estimated to be $4.0 million . During 2013, the estimate of the contingent consideration liability decreased by $2.4 million as the Company finalized purchase accounting for the Reed Minerals acquisition. During 2014 , the estimate of the contingent consideration liability decreased by $1.6 million and is recorded as a reduction of Selling, general and administrative expenses in the Consolidated Statements of Operations. The contingent consideration is structured as an earn-out payment to the sellers of Reed Minerals. The earn-out is calculated as a percentage by which the monthly average coal selling price exceeds an established threshold multiplied by the number of tons sold during the month. The earn-out period covers the first 15.0 million tons of coal sold from the Reed Minerals coal reserves. There is no monetary cap on the amount payable under this contingent payment arrangement. The $1.6 million liability for contingent consideration at December 31, 2013 was included in other long-term liabilities in the Consolidated Balance Sheet. Earn-out payments, if payable, are paid quarterly. No earn-out payments were paid during the year ended December 31, 2014 . At December 31, 2014 , the estimated fair value of the earn-out liability is zero .

The estimated fair value of the contingent consideration was determined based on the income approach with key assumptions that include future projected metallurgical coal prices, forecasted coal deliveries and the estimated discount rate used to determine the present value of the projected contingent consideration payments. Future projected coal prices were estimated using a stochastic modeling methodology based on Geometric Brownian Motion with a risk neutral Monte Carlo simulation. Significant assumptions used in the model include coal price volatility and the risk-free interest rate based on U.S. Treasury yield curves with maturities consistent with the expected life of the contingent consideration. Volatility is considered a significant assumption and is based on historical coal prices. A significant increase or decrease in any of the aforementioned key assumptions related to the fair value measurement of the contingent consideration would result in a significantly higher or lower reported fair value for the contingent consideration liability.

The future anticipated cash flow for the contingent consideration was discounted using an interest rate that appropriately captures a market participant's view of the risk associated with the liability. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.

Nonrecurring Fair Value Measurements : The Company determined that indicators of potential impairment were present during the fourth quarter of 2014 with respect to its Reed Minerals mining operations asset group. The 2015 operating plan and long-range outlook were updated to reflect new information about compliance with the U.S. Environmental Protection Agency’s new Mercury and Air Toxics Standards ("MATS"), continued weakness in the Alabama coal markets, decreased demand and market prices associated with the metallurgical coal market and the lack of any reliable indicators of a recovery in coal demand or price. Reed Minerals obtained new information from its largest thermal coal customer on more stringent coal quality requirements its customer planned to adopt to comply with MATS, beginning in the fourth quarter of 2015 instead of 2016, when MATS compliance becomes mandatory. In contemplation of satisfying the more stringent MATS coal quality requirements, Reed Minerals’ coal processing costs are expected to increase, beginning in 2015, beyond what was previously assumed in the Reed Minerals' 2015 operating plan and long-range outlook, without any increase in selling price.
After considering these factors, the Company assessed the recoverability of Reed Minerals assets and determined that the assets were not fully recoverable when compared to the remaining future undiscounted cash flows from these assets. As a result, the Company estimated the fair value of the asset group and the long-lived assets were written down to their estimated fair value which resulted in a non-cash asset impairment charge of $105.1 million . The asset impairment charge was recorded as Reed Minerals long-lived asset impairment charge in the Consolidated Statement of Operations for the year ended December 31, 2014 and relates exclusively to the NACoal segment. The fair value of the asset group was calculated using the combination of a market and income approach and reduced the carrying value of coal land and real estate to $7.2 million , other property, plant and equipment to $37.1 million and intangible assets to zero .

F-25



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The fair value estimate for the coal land and real estate and other property, plant and equipment was calculated using market data for similar assets, which are classified as Level 2 inputs. The fair value of the coal supply agreement and non-compete intangible assets were estimated to be zero given current market conditions. Key inputs in this model are based on significant unobservable inputs and include the forecast of tons sold and coal pricing and are classified as Level 3 inputs.
The Company assessed the goodwill of the Reed Minerals reporting unit as of October 1, 2013. In performing the test of goodwill, the Company utilized the two-step approach. The first step requires a comparison of the carrying value of the reporting unit to the estimated fair value of the reporting unit. If the carrying value of the reporting unit exceeds its estimated fair value, the Company performs the second step of the goodwill impairment test to calculate the implied fair value of the reporting unit's goodwill and compares that to its carrying value to measure the amount of the impairment, if any.
In step one, the Company used a combination of an income approach and a market approach to estimate the fair value of the Reed Minerals reporting unit. The income approach utilized a discounted cash flow valuation technique ("DCF model") which incorporates the Company's historical results and projected, future estimates of after-tax cash flows attributable to the reporting units future growth rates, terminal value amounts and the weighted average cost of capital. The market approach utilized the guideline public company method and the guideline merged and acquired company method to determine the fair value of the reporting unit. The valuation result from the market approach was dependent upon the selection of the comparable guideline companies and transactions and the revenue multiple applied to the Reed Minerals reporting unit's historical and projected financial information. Significant management judgment was applied in determining the weight, 25% and 75% , assigned to the outcome of the market approach and the income approach, respectively, which resulted in one single estimate of fair value of the reporting unit. The Company determined that the carrying value of the Reed Minerals reporting unit exceeded its estimated fair value.
In performing step 2 of the goodwill impairment test, the Company estimated the implied fair value of the Reed Minerals reporting unit's goodwill and concluded goodwill was fully impaired resulting in a non-cash charge of $4.0 million recognized during the year ended December 31, 2013. This charge had no impact on the Company's cash flows or compliance with debt covenants. The primary factors contributing to the goodwill impairment charge were changes to the mine plan in 2014 and assumptions regarding future metallurgical coal price trends and mining costs and the associated impact on future cash flows from these changes.
The fair value measurement of the reporting unit under the step-one analysis and the step-two analysis in their entirety are classified as Level 3 inputs. The estimates and assumptions underlying the fair value calculations used in the Company's annual impairment tests are uncertain by their nature and can vary significantly from actual results. Factors that management must estimate include, but are not limited to, industry and market conditions, sales volume and pricing, mining costs, capital expenditures, working capital changes, cost of capital, debt-equity mix and tax rates. The estimates and assumptions that most significantly affect the fair value calculation are metallurgical coal prices and sales volume and the associated cash flow assumptions, weighted average cost of capital, and revenue multiples from the selected comparable companies. The estimates and assumptions used in the estimate of fair value are consistent with those the Company uses in its internal planning.
In 2014, 2013 and 2012, KC considered its operating loss to be an indicator of impairment. For KC’s asset impairment analysis, the primary input is projected future store level cash flows utilizing assumptions consistent with those the Company uses in its internal planning, which are classified as Level 3 inputs. As a result of the year-end review of long-lived store-related assets, the Company recorded impairment charges of $0.9 million , $1.1 million and $0.7 million in 2014, 2013 and 2012, respectively, included in depreciation expense within Selling, general and administrative expenses in the Consolidated Statements of Operations. Long-lived assets at the stores consist mainly of leasehold improvements and furniture and fixtures. The fair value for leasehold improvements was determined to be zero as such assets were deemed to have no future use or economic benefit based on the Company's analysis using market participant assumptions, and therefore no expected future cash flows. The fair value for store fixtures is based on the market exit price based on historical experience. The impairment charges in 2014 were largely the result of decreased expected future operating results.
See Note 5 and Note 6 for further discussion of Property, Plant and Equipment and Intangible Assets, respectively.

Other Fair Value Measurement Disclosures: The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. At December 31, 2014 , both the fair value and the book value of revolving credit agreements and long-term debt, excluding capital leases, was

F-26



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

$236.3 million . At December 31, 2013 , both the fair value and the book value of revolving credit agreements and long-term debt, excluding capital leases, was $170.7 million .
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable and derivatives. HBB maintains significant accounts receivable balances with several large retail customers. At December 31, 2014 and 2013 , receivables from HBB's five largest customers represented 53.3% and 53.5% , respectively, of the Company's consolidated, net accounts receivable. In addition, under its mining contracts, NACoal recognizes revenue and a related receivable as coal or limerock is delivered or predevelopment services are provided. These mining contracts provide for monthly settlements. HBB and NACoal's significant credit concentration is uncollateralized; however, historically minimal credit losses have been incurred. To further reduce credit risk associated with accounts receivable, the Company performs periodic credit evaluations of its customers, but does not generally require advance payments or collateral. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any one institution. See Note 9 for further discussion of the Company's derivative financial instruments.

NOTE 11— Leasing Arrangements

The Company leases certain office and warehouse facilities, retail stores and machinery and equipment under noncancellable capital and operating leases that expire at various dates through 2026. Many leases include renewal and/or fair value purchase options.
Future minimum capital and operating lease payments at December 31, 2014 are:
 
Capital
Leases
 
Operating
Leases
2015
$
1,732

 
$
34,316

2016
1,732

 
27,196

2017
1,732

 
19,635

2018
2,022

 
15,630

2019
1,521

 
11,595

Subsequent to 2019
3,997

 
25,193

Total minimum lease payments
12,736

 
$
133,565

Amounts representing interest
1,098

 
 
Present value of net minimum lease payments
11,638

 
 
Current maturities
1,467

 
 
Long-term capital lease obligation
$
10,171

 
 
Rental expense for all operating leases was $39.8 million , $45.0 million and $42.9 million in 2014 , 2013 and 2012 , respectively. The Company also recognized $0.7 million , $0.6 million and $0.6 million in 2014 , 2013 and 2012 , respectively, for rental income on subleases of equipment and buildings under operating leases in which it was the lessee.

KC accrued $1.2 million in early lease termination penalties within Selling, general, and administrative expenses for the year ended December 2014. These penalties arose as a result of early exit provisions in certain operating lease contracts permitting the company to exit these sites in the first half of 2015 rather than upon lease expiration in outlying years.

Assets recorded under capital leases are included in property, plant and equipment and consist of the following:
 
December 31
 
2014
 
2013
Plant and equipment
$
4,807

 
$
14,509

Less accumulated depreciation
1,927

 
1,650

 
$
2,880

 
$
12,859

Depreciation of plant and equipment under capital leases is included in depreciation expense in each of the years ended December 31, 2014 , 2013 and 2012 .

F-27



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Capital lease obligations of $2.2 million and $9.3 million were incurred in connection with lease agreements to acquire plant and equipment during 2013 and 2012 , respectively. No capital lease obligations were incurred in 2014.
NOTE 12— Contingencies

Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, patent infringement, asbestos related claims, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that material costs will be incurred in excess of accruals already recognized.

HBB is investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, HBB estimates the total investigation and remediation costs and the period of assessment and remediation activity required for each site. The estimate of future investigation and remediation costs is primarily based on variables associated with site clean-up, including, but not limited to, physical characteristics of the site, the nature and extent of the contamination and applicable regulatory programs and remediation standards. No assessment can fully characterize all subsurface conditions at a site. There is no assurance that additional assessment and remediation efforts will not result in adjustments to estimated remediation costs or the time frame for remediation at these sites.

HBB's estimates of investigation and remediation costs may change if it discovers contamination at additional sites or additional contamination at known sites, if the effectiveness of its current remediation efforts change, if applicable federal or state regulations change or if HBB's estimate of the time required to remediate the sites changes. HBB's revised estimates may differ materially from original estimates.

At December 31, 2014 and December 31, 2013 , HBB had accrued undiscounted obligations of $9.7 million and $6.9 million , respectively, for environmental investigation and remediation activities at these sites. In addition, HBB estimates that it is reasonably possible that it may incur additional expenses in the range of zero to $3.9 million related to the environmental investigation and remediation at these sites.

The increase in the liability from December 31, 2013 is primarily due to an additional $3.3 million charge for environmental investigation and remediation activities at HBB's Picton, Ontario facility as a result of an environmental study performed in 2014. During 2013, HBB recorded a $2.3 million charge to establish the liability for environmental investigation and remediation activities at the Picton, Ontario facility.

Also during 2014 and 2013, HBB recorded an $0.8 million and $1.6 million reduction, respectively, in Selling, general and administrative expenses as a result of a third party's commitment to share in anticipated remediation costs at HBB's Southern Pines and Mt. Airy locations. The undiscounted receivable is recorded in "Other non-current assets" on the Consolidated Balance Sheets.

NOTE 13— Product Warranties


F-28



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

HBB provides a standard warranty to consumers for all of its products. The specific terms and conditions of those warranties vary depending upon the product brand. In general, if a product is returned under warranty, a refund is provided to the consumer by HBB's customer, the retailer. Generally, the retailer returns those products to HBB for a credit. The Company estimates the costs which may be incurred under its standard warranty programs and records a liability for such costs at the time product revenue is recognized.

The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Factors that affect the Company's warranty liability include the number of units sold, historical and anticipated rates of warranty claims and the cost per claim.
Changes in the Company's current and long-term warranty obligations are as follows:
 
2014
 
2013
Balance at January 1
$
5,343

 
$
4,269

Warranties issued
8,640

 
8,855

Settlements made
(8,127
)
 
(7,781
)
Balance at December 31
$
5,856

 
$
5,343


NOTE 14— Stockholders' Equity and Earnings Per Share

NACCO Industries, Inc. Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.” Because of transfer restrictions on Class B common stock, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis at any time at the request of the holder. The Company's Class A common stock and Class B common stock have the same cash dividend rights per share. The Class A common stock has one vote per share and the Class B common stock has ten votes per share. The total number of authorized shares of Class A common stock and Class B common stock at December 31, 2014 was 25,000,000 shares and 6,756,176 shares, respectively. Treasury shares of Class A common stock totaling 2,548,336 and 1,912,322 at December 31, 2014 and 2013 , respectively, have been deducted from shares outstanding.

Stock Repurchase Programs: On November 8, 2011, the Company announced that the Company's Board of Directors approved the repurchase of up to $50 million of the Company's outstanding Class A common stock (the "2011 Stock Repurchase Program"). The original authorization for the 2011 Stock Repurchase Program expired on December 31, 2012; however, in November 2012 the Company's Board of Directors approved an extension of the 2011 Stock Repurchase Program through December 31, 2013. In total, the Company repurchased $35.6 million of Class A common stock under the 2011 Stock Repurchase Program.

On November 12, 2013, the Company's Board of Directors terminated the 2011 Stock Repurchase Program and approved a new stock repurchase program (the "2013 Stock Repurchase Program") providing for the purchase of up to $60 million of the Company's outstanding Class A Common Stock through December 31, 2015. The timing and amount of any repurchases under the 2013 Stock Repurchase Program will be determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company's Class A common stock. The 2013 Stock Repurchase Program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2013 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 prevented from doing so.

As of December 31, 2014 , the Company repurchased 680,013 shares of Class A Common Stock for an aggregate purchase price of $36.0 million under the 2013 Stock Repurchase Program (the "2013 Program"). During 2014, the Company repurchased $35.1 million under the 2013 Program. During 2014, the average purchase price per share and number of shares repurchased under 2013 Program were $52.83 per share and 663,918 shares, respectively.
Stock Options : The 1975 and 1981 stock option plans, as amended, provide for the granting to officers and other key employees of options to purchase Class A common stock and Class B common stock of the Company at a price not less than the market value of such stock at the date of grant. Options become exercisable over a four -year period and expire ten years

F-29



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

from the date of the grant. During the three-year period ending December 31, 2014 , there were 80,701 shares of Class A common stock and 80,100 shares of Class B common stock available for grant. However, no options were granted during the three-year period ended December 31, 2014 and no options remain outstanding at the end of any of the years ended December 31, 2014 , 2013 or 2012 . At present, the Company does not intend to issue additional stock options.
Stock Compensation: See Note 2 for a discussion of the Company's restricted stock awards.

Amounts Reclassified out of Accumulated Other Comprehensive Income: The following table summarizes the amounts reclassified out of AOCI and recognized in the Consolidated Statement of Operations:

 
 
Amount reclassified from AOCI
 
Details about AOCI components
 
2014
 
2013
Location of loss (gain) reclassified from AOCI into income
 
 
(In thousands)
 
Loss (gain) on cash flow hedging
 
 
 
 
 
Foreign exchange contracts
 
$
(108
)
 
$
(213
)
Cost of sales
Interest rate contracts
 
1,495

 
460

Interest expense
 
 
1,387

 
247

Total before income tax expense
 
 
(489
)
 
(95
)
Income tax expense (benefit)
 
 
$
898

 
$
152

Net of tax
 
 
 
 
 
 
Pension and postretirement plan
 
 
 
 
 
Actuarial loss
 
$
1,015

 
$
1,995

(a)  
Prior-service credit
 
(75
)
 
(154
)
(a)  
 
 
940

 
1,841

Total before income tax expense
 
 
(313
)
 
(740
)
Income tax expense (benefit)
 
 
$
627

 
$
1,101

Net of tax
 
 
 
 
 
 
Total reclassifications for the period
 
$
1,525

 
$
1,253

Net of tax

(a) These AOCI components are included in the computation of pension expense. See Note 16 for a discussion of the Company's pension expense.

F-30



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Earnings per Share: For purposes of calculating earnings per share, no adjustments have been made to the reported amounts of net income.
The weighted average number of shares of Class A common stock and Class B common stock outstanding used to calculate basic and diluted earnings per share were as follows:
 
2014
 
2013
 
2012
Basic weighted average shares outstanding
7,590

 
8,105

 
8,384

Dilutive effect of restricted stock awards
N/A

 
19

 
30

Diluted weighted average shares outstanding
7,590

 
8,124

 
8,414

 
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.48

 
$
5.04

Discontinued operations

 

 
7.93

Basic earnings (loss) per share
$
(5.02
)
 
$
5.48

 
$
12.97

 
 
 
 
 
 
Continuing operations
$
(5.02
)
 
$
5.47

 
$
5.02

Discontinued operations

 

 
7.90

Diluted earnings (loss) per share
$
(5.02
)
 
$
5.47

 
$
12.92


NOTE 15— Income Taxes

The components of income (loss) from continuing operations before income tax provision (benefit) and the income tax provision (benefit) for the years ended December 31 are as follows:
 
2014
 
2013
 
2012
Income (loss) from continuing operations before income tax provision (benefit)
 
 
 
 
 
Domestic
$
(74,402
)
 
$
54,630

 
$
53,167

Foreign
(2,171
)
 
1,090

 
4,861

 
$
(76,573
)
 
$
55,720

 
$
58,028

Income tax provision (benefit)
 
 
 
 
 
Current income tax provision (benefit):
 
 
 
 
 
Federal
$
2,778

 
$
15,392

 
$
(1,811
)
State
(472
)
 
1,965

 
1,474

Foreign
586

 
1,559

 
1,556

Total current
2,892

 
18,916

 
1,219

Deferred income tax provision (benefit):
 
 
 
 
 
Federal
(38,829
)
 
(5,490
)
 
14,107

State
(1,817
)
 
(1,141
)
 
668

Foreign
(701
)
 
(1,015
)
 
(129
)
Total deferred
(41,347
)
 
(7,646
)
 
14,646

 
$
(38,455
)
 
$
11,270

 
$
15,865

The Company made income tax payments of $10.2 million , $10.8 million and $20.3 million during 2014 , 2013 and 2012 , respectively. During the same periods, income tax refunds totaled $0.9 million , $1.2 million and $0.8 million , respectively.

F-31



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

A reconciliation of the federal statutory and effective income tax rate for the years ended December 31 is as follows:
 
2014
 
2013
 
2012
Income (loss) from continuing operations before income tax provision (benefit)
$
(76,573
)
 
$
55,720

 
$
58,028

Statutory taxes (benefit) at 35.0%
$
(26,801
)
 
$
19,502

 
$
20,310

State and local income taxes
(7,112
)
 
136

 
1,568

NACoal valuation allowance
5,742

 
(12
)
 

Non-deductible expenses
632

 
1,081

 
1,112

Percentage depletion
(8,572
)
 
(8,057
)
 
(4,963
)
R&D and other federal credits
(1,397
)
 
(1,173
)
 
(132
)
Other, net
322

 
520

 
(1,629
)
     Tax settlements
(1,269
)
 
(727
)
 
(401
)
Income tax provision
$
(38,455
)
 
$
11,270

 
$
15,865

Effective income tax rate
50.2
%
 
20.2
%
 
27.3
%
As of December 31, 2014 , the cumulative unremitted earnings of the Company's foreign subsidiaries are approximately $8.0 million . The Company has provided a cumulative deferred tax liability in the amount of $0.2 million with respect to the cumulative unremitted earnings of the Company as of December 31, 2014 which are expected to be repatriated. The Company has continued to conclude predominately all remaining foreign earnings in excess of this amount will be indefinitely reinvested in its foreign operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable to determine the amount of unrecognized deferred taxes with respect to these permanently reinvested earnings; however, foreign tax credits would be available to reduce, in part, U.S. income taxes in the event of a distribution.
A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences in the book and tax basis of assets and liabilities follows:
 
December 31
 
2014
 
2013
Deferred tax assets
 
 
 
Tax carryforwards
$
8,531

 
$
5,029

Inventories
7,027

 
4,709

Accrued expenses and reserves
28,842

 
26,019

Other employee benefits
13,264

 
11,432

Asset impairment (1)
39,757

 
841

Other
9,199

 
6,534

Total deferred tax assets
106,620

 
54,564

Less: Valuation allowance
8,521

 
2,280

 
98,099

 
52,284

Deferred tax liabilities
 
 
 
Depreciation and depletion
43,111

 
39,906

Partnership investment - development costs
19,535

 
20,215

Accrued pension benefits
858

 
1,037

Unremitted foreign earnings
223

 
168

Total deferred tax liabilities
63,727

 
61,326

Net deferred asset (liability)
$
34,372

 
$
(9,042
)
(1) During the fourth quarter of 2014, NACoal's long-lived asset evaluation resulted in the Company recording a non-cash asset impairment charge of $105.1 million for the Reed Minerals' long-lived asset group. See Note 5 , Note 6 and Note 10 for further discussion of the Company's long-lived asset impairment.

F-32



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain:
 
December 31, 2014
 
Net deferred tax
asset
 
Valuation
allowance
 
Carryforwards
expire during:
Non-U.S. net operating loss
$
772

 
$
772

 
2020 - Indefinite
State losses
9,791

 
5,687

 
2015 - 2033
Alternative minimum tax credit
1,396

 

 
Indefinite
Total
$
11,959

 
$
6,459

 
 
 
December 31, 2013
 
Net deferred tax
asset
 
Valuation
allowance
 
Carryforwards
expire during:
Non-U.S. net operating loss
$
430

 
$
351

 
2020 - Indefinite
State losses
6,967

 
2,845

 
2014 - 2033
Alternative minimum tax credit
70

 

 
Indefinite
Total
$
7,467

 
$
3,196

 
 
The Company continually evaluates its deferred tax assets to determine if a valuation allowance is required.  A valuation allowance is required where realization is determined to no longer meet the “more likely than not” standard.  The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods.
Based upon the review of historical earnings and the relevant expiration of carryforwards, including utilization limitations in the various state taxing jurisdictions, the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the next twelve months that would have a significant effect on the Company's financial position or results of operations.
The tax returns of the Company and certain of its subsidiaries are under routine examination by various taxing authorities. The Company has not been informed of any material assessment for which an accrual has not been previously provided and the Company would vigorously contest any material assessment. Management believes any potential adjustment would not materially affect the Company's financial condition or results of operations.
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, 2014 and 2013 . Approximately $3.0 million and $4.2 million of these gross amounts as of December 31, 2014 and 2013 , respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes which would occur upon the recognition of the state tax benefits included herein.
 
2014
 
2013
Balance at January 1
$
7,848

 
$
2,691

Additions based on tax positions related to prior years
453

 
5,615

Additions based on tax positions related to the current year
921

 
78

Reductions due to settlements with taxing authorities
(4,701
)
 
(191
)
Reductions due to lapse of the applicable statute of limitations
(1,055
)
 
(345
)
Balance at December 31
$
3,466

 
$
7,848

The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recognized net (benefit)/expense of $(0.9) million and $0.4 million in interest and penalties related to uncertain tax positions during 2014 and 2013 , respectively. The total amount of interest and penalties accrued was $0.5 million and $1.4 million as of December 31, 2014 and 2013 , respectively.

F-33



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The Company expects the amount of unrecognized tax benefits will change within the next 12 months; however, the change in unrecognized tax benefits, which is reasonably possible within the next 12 months, is not expected to have a significant effect on the Company's financial position or results of operations.
In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. The examination of the 2011 and 2012 U.S. federal tax returns concluded in the second quarter of 2014. The Company does not have any additional material taxing jurisdictions in which the statute of limitations has been extended beyond the applicable time frame allowed by law.
NOTE 16— Retirement Benefit Plans
Defined Benefit Plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. During 2013, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees, including those for certain Unconsolidated Mines' employees and cost of living adjustments ("COLA's") for other employees, effective as of the close of business on December 31, 2013. As a result of this amendment, the Company remeasured the Combined Plan and recorded a $1.7 million pre-tax curtailment gain during 2013.
The Company also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all remaining pension benefits. In years prior to 2013, benefits other than COLA’s were frozen for all SERP participants. Effective as of the close of business on December 31, 2013, all COLA benefits under the SERP were eliminated for all plan participants.
Certain executive officers also maintain accounts under various deferred compensation plans that were frozen effective December 31, 2007. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.
During 2014, the Society of Actuaries released a new mortality table, referred to as RP-2014, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. The Company used RP-2014 to measure its projected benefit obligation as of December 31, 2014 and the Company's projected benefit obligation increased by $5.0 million in total for its U.S. Plans and SERP as of December 31, 2014 as a result of RP-2014.
The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31 :
 
2014
 
2013
 
2012
U.S. Plans
 
 
 
 
 
Weighted average discount rates for pension benefit obligation
3.45% - 3.95%

 
4.00% - 4.75%

 
3.50% - 3.90%

Weighted average discount rates for net periodic benefit cost
4.00% - 4.75%

 
3.50% - 4.70%

 
4.30% - 4.55%

Expected long-term rate of return on assets for pension benefit obligation
7.75
%
 
7.75
%
 
7.75
%
Expected long-term rate of return on assets for net periodic benefit cost
7.75
%
 
7.75
%
 
8.25
%
Non-U.S. Plan
 
 
 
 
 
Weighted average discount rates for pension benefit obligation
3.75
%
 
4.50
%
 
4.00
%
Weighted average discount rates for net periodic benefit cost
4.50
%
 
4.00
%
 
4.25
%
Rate of increase in compensation levels
3.50
%
 
3.50
%
 
3.50
%
Expected long-term rate of return on assets for pension benefit obligation
5.75
%
 
6.00
%
 
6.00
%
Expected long-term rate of return on assets for net periodic benefit cost
6.00
%
 
6.00
%
 
6.25
%


F-34



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended December 31 :
 
2014
 
2013
 
2012
U.S. Plans
 
 
 
 
 
Interest cost
$
2,754

 
$
2,766

 
$
3,056

Expected return on plan assets
(4,689
)
 
(4,513
)
 
(4,344
)
Amortization of actuarial loss
837

 
1,822

 
2,772

Amortization of prior service cost (credit)
32

 
(47
)
 
(100
)
Curtailment gain

 
(1,701
)
 

Net periodic pension expense (income)
$
(1,066
)
 
$
(1,673
)
 
$
1,384

 
 
 
 
 
 
Non-U.S. Plan
 
 
 
 
 
Interest cost
$
196

 
$
197

 
$
208

Expected return on plan assets
(296
)
 
(282
)
 
(287
)
Amortization of actuarial loss
112

 
121

 
131

Net periodic pension expense
$
12

 
$
36

 
$
52

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 :
 
2014
 
2013
 
2012
U.S. Plans
 
 
 
 
 
Current year actuarial (gain) loss
$
8,896

 
$
(11,503
)
 
$
3,131

Amortization of actuarial loss
(837
)
 
(1,822
)
 
(2,772
)
Current year prior service cost (credit)
360

 
(1,331
)
 

Amortization of prior service (cost) credit
(32
)
 
47

 
100

Curtailment gain

 
1,701

 

Total recognized in other comprehensive (income) loss
$
8,387

 
$
(12,908
)
 
$
459

Non-U.S. Plan
 
 
 
 
 
Current year actuarial (gain) loss
$
(94
)
 
$
(735
)
 
$
45

Amortization of actuarial loss
(112
)
 
(121
)
 
(131
)
Total recognized in other comprehensive (income)
$
(206
)
 
$
(856
)
 
$
(86
)

F-35



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31 :
 
2014
 
2013
 
U.S.
Plans
 
Non-U.S.
Plan
 
U.S. Plans
 
Non-U.S.
Plan
Change in benefit obligation
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
65,099

 
$
4,603

 
$
72,977

 
$
5,212

Interest cost
2,754

 
196

 
2,766

 
197

Actuarial (gain) loss
8,736

 
301

 
(4,488
)
 
(317
)
Benefits paid
(4,262
)
 
(151
)
 
(4,715
)
 
(160
)
Plan amendments

 

 
(1,441
)
 

Foreign currency exchange rate changes

 
(400
)
 

 
(329
)
Intercompany transfers
512

 

 

 

Projected benefit obligation at end of year
$
72,839

 
$
4,549

 
$
65,099

 
$
4,603

Accumulated benefit obligation at end of year
$
72,839

 
$
4,549

 
$
65,099

 
$
4,603

Change in plan assets
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
67,170

 
$
5,186

 
$
60,012

 
$
4,961

Actual return on plan assets
5,972

 
690

 
11,383

 
719

Employer contributions
496

 
20

 
490

 

Benefits paid
(4,262
)
 
(151
)
 
(4,715
)
 
(160
)
Foreign currency exchange rate changes

 
(459
)
 

 
(334
)
Intercompany transfers
(701
)
 

 

 

Fair value of plan assets at end of year
$
68,675

 
$
5,286

 
$
67,170

 
$
5,186

Funded status at end of year
$
(4,164
)
 
$
737

 
$
2,071

 
$
583

Amounts recognized in the balance sheets consist of:
 
 
 
 
 
 
 
Noncurrent assets
$
4,304

 
$
737

 
$
8,005

 
$
583

Current liabilities
(1,110
)
 

 
(1,138
)
 

Non-current liabilities
(7,358
)
 

 
(4,796
)
 

 
$
(4,164
)
 
$
737

 
$
2,071

 
$
583

Components of accumulated other comprehensive loss (income) consist of:
 
 
 
 
 
 
 
Actuarial loss
$
26,925

 
$
1,110

 
$
18,861

 
$
1,380

Prior service cost
955

 

 
626

 

Deferred taxes
(10,683
)
 
(426
)
 
(7,854
)
 
(576
)
     Currency differences

 
(43
)
 

 

 
$
17,197

 
$
641

 
$
11,633

 
$
804

The actuarial loss and prior service cost included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2015 are $1.1 million ( $0.6 million net of tax) and less than $0.1 million , respectively.

The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in AOCI.

F-36



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations. The Company expects to contribute less than $0.1 million to its non-U.S. pension plans in 2015 .
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:
 
U.S. Plans
 
Non-U.S. Plan
2015
$
5,068

 
$
149

2016
4,751

 
157

2017
4,581

 
171

2018
4,491

 
169

2019
4,494

 
177

2020 - 2024
23,468

 
1,245

 
$
46,853

 
$
2,068

The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for U.S. pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for Non-U.S. pension plans are based on fair market value for Non-U.S. pension plan assets.
The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.
The following is the actual allocation percentage and target allocation percentage for the U.S. pension plan assets at December 31:
 
2014
Actual
Allocation
 
2013
Actual
Allocation
 
Target Allocation
Range
U.S. equity securities
55.3
%
 
53.6
%
 
41.0% - 62.0%
Non-U.S. equity securities
11.3
%
 
13.0
%
 
10.0% - 16.0%
Fixed income securities
32.9
%
 
32.9
%
 
30.0% - 40.0%
Money market
0.5
%
 
0.5
%
 
0.0% - 10.0%
The following is the actual allocation percentage and target allocation percentage for the Non-U.S. pension plan assets at December 31:
 
2014
Actual
Allocation
 
2013
Actual
Allocation
 
Target Allocation
Range
Canadian equity securities
30.2
%
 
31.0
%
 
25.0% - 35.0%
Non-Canadian equity securities
30.1
%
 
32.0
%
 
25.0% - 35.0%
Fixed income securities
39.7
%
 
37.0
%
 
30.0% - 50.0%
Cash and cash equivalents
%
 
%
 
0.0% - 5.0%

F-37



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

The defined benefit pension plans do not have any direct ownership of NACCO common stock.
The fair value of each major category of the Company's U.S. pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. The fair value of each major category of the Company's Non-U.S. pension plan assets are valued using observable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets, or Level 2 in the fair value hierarchy. Following are the values as of December 31 :
 
Level 1
 
Level 2
 
2014
 
2013
 
2014
 
2013
U.S. equity securities
$
37,969

 
$
35,980

 
$
864

 
$
833

Non-U.S. equity securities
7,764

 
8,701

 
2,326

 
2,455

Fixed income securities
22,617

 
22,125

 
2,096

 
1,898

Money market
325

 
364

 

 

Total
$
68,675

 
$
67,170

 
$
5,286

 
$
5,186

Postretirement Health Care: The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.
The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31 :
 
2014
 
2013
 
2012
Weighted average discount rates for benefit obligation
3.25
%
 
3.85
%
 
3.05
%
Weighted average discount rates for net periodic benefit cost
3.85
%
 
3.05
%
 
3.90
%
Health care cost trend rate assumed for next year
7.0
%
 
7.0
%
 
7.0
%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
5.0
%
 
5.0
%
 
5.0
%
Year that the rate reaches the ultimate trend rate
2022

 
2022

 
2022

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects at December 31, 2014 :
 
1-Percentage-Point
Increase
 
1-Percentage-Point
Decrease
Effect on total of service and interest cost
$
17

 
$
(15
)
Effect on postretirement benefit obligation
$
268

 
$
(244
)
Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended December 31 :
 
2014
 
2013
 
2012
Service cost
$
70

 
$
77

 
$
79

Interest cost
118

 
98

 
120

Amortization of actuarial loss
66

 
52

 
40

Amortization of prior service credit
(107
)
 
(107
)
 
(156
)
Net periodic benefit expense
$
147

 
$
120

 
$
83


F-38



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31 :
 
2014
 
2013
 
2012
Current year actuarial loss
$
613

 
$
16

 
$
295

Amortization of actuarial loss
(66
)
 
(52
)
 
(40
)
Amortization of prior service credit
107

 
107

 
156

Total recognized in other comprehensive income
$
654

 
$
71

 
$
411

The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at December 31 :
 
2014
 
2013
Change in benefit obligation
 
 
 
Benefit obligation at beginning of year
$
3,109

 
$
3,283

Service cost
70

 
77

Interest cost
118

 
98

Actuarial loss
613

 
16

Benefits paid
(376
)
 
(365
)
Benefit obligation at end of year
$
3,534

 
$
3,109

Funded status at end of year
$
(3,534
)
 
$
(3,109
)
Amounts recognized in the balance sheets consist of:
 
 
 
Current liabilities
$
(276
)
 
$
(257
)
Noncurrent liabilities
(3,258
)
 
(2,852
)
 
$
(3,534
)
 
$
(3,109
)
Components of accumulated other comprehensive loss (income) consist of:
 
 
 
Actuarial loss
$
1,005

 
$
457

Prior service credit
(309
)
 
(415
)
Deferred taxes
475

 
674

 
$
1,171

 
$
716

The actuarial loss and prior service credit included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2015 is $0.1 million (less than $0.1 million net of tax) and $0.1 million (less than $0.1 million net of tax), respectively.
Future postretirement health care benefit payments expected to be paid are:
2015
$
276

2016
264

2017
273

2018
292

2019
301

2020 - 2024
1,515

 
$
2,921


F-39



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Defined Contribution Plans: NACCO and its subsidiaries maintain defined contribution (401(k)) plans for substantially all U.S. employees and similar plans for employees outside of the United States. All companies provide employer matching (or safe harbor) contributions based on plan provisions. The defined contribution retirement plans also provide for an additional minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company's contribution to participants is determined annually based on a formula that includes the effect of actual compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were $7.6 million , $8.0 million and $6.7 million in 2014 , 2013 and 2012 , respectively.
NOTE 17— Business Segments

NACCO is a holding company with the following reportable segments: NACoal, HBB and KC. See Note 1 for a discussion of the Company's industries and product lines. NACCO's non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire.
Financial information for each of NACCO's reportable segments is presented in the following table. The accounting policies of the reportable segments are described in Note 2 . The line “Eliminations” in the revenues section eliminates revenues from HBB sales to KC. The amounts of these revenues are based on current market prices of similar third-party transactions. No other sales transactions occur among reportable segments.
The majority of NACoal's revenues is generated from its consolidated mining operations and dragline mining services. MLMC's customer, Choctaw Generation Limited Partnership until February 28, 2013 and KMRC RH, LLC subsequent to February 28, 2013, accounted for approximately 39% , 42% and 56% of NACoal's revenues for the years ended December 31, 2014 , 2013 and 2012 , respectively. Reed Minerals' largest customer, Alabama Coal Cooperative, accounted for approximately 27% , 27% and 15% of NACoal's revenues for the years ended December 31, 2014 , 2013 and 2012 , respectively. The results of Reed Minerals operations have been included in the Company's consolidated financial statements since August 31, 2012. The results of Weston have been included since December 16, 2014. Wal-Mart accounted for approximately 33% , 31% and 31% of HBB’s revenues in 2014 , 2013 and 2012 , respectively. HBB’s five largest customers accounted for approximately 56% , 55% and 53% of HBB’s revenues for the years ended December 31, 2014 , 2013 and 2012 , respectively. The loss of or significant reduction in sales to any key customer could result in significant decreases in NACoal's and HBB’s revenue and profitability and an inability to sustain or grow its business.
The management fees charged to operating subsidiaries represent an allocation of corporate overhead of the parent company. Management fees are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary. The Company believes the allocation method is consistently applied and reasonable. Management fees included in the Selling, general and administrative expenses of the subsidiaries were $8.5 million , $6.8 million and $6.9 million for 2014 , 2013 and 2012 , respectively. In addition, the parent company received management fees from Hyster-Yale prior to the spin-off of $9.6 million for the year ended December 31, 2012.

F-40



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

 
2014
 
2013
 
2012
Revenues from external customers
 
 
 
 
 
NACoal
$
172,702

 
$
193,651

 
$
132,367

HBB
559,683

 
547,790

 
521,567

KC
168,545

 
196,033

 
224,695

Eliminations
(4,148
)
 
(4,808
)
 
(5,265
)
Total
$
896,782

 
$
932,666

 
$
873,364

Gross profit (loss)
 
 
 
 
 
NACoal
$
(3,139
)
 
$
25,230

 
$
27,998

HBB
117,570

 
115,506

 
102,289

KC
71,621

 
80,972

 
95,832

NACCO and Other
(461
)
 
(469
)
 
(278
)
Eliminations
(519
)
 
52

 
101

Total
$
185,072

 
$
221,291

 
$
225,942

Selling, general and administrative expenses, including Amortization of intangible assets
 
 
 
 
 
NACoal
$
36,147

 
$
30,786

 
$
36,801

HBB
81,798

 
74,570

 
66,481

KC
79,056

 
91,878

 
100,350

NACCO and Other
4,996

 
5,765

 
6,723

Total
$
201,997

 
$
202,999

 
$
210,355


F-41



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

 
2014
 
2013
 
2012
Operating profit (loss)
 
 
 
 
 
NACoal
$
(89,030
)
 
$
37,461

 
$
43,239

HBB
35,772

 
40,960

 
35,815

KC
(7,075
)
 
(10,903
)
 
(4,512
)
NACCO and Other
(5,456
)
 
(6,233
)
 
(7,000
)
Eliminations
(520
)
 
51

 
100

Total
$
(66,309
)
 
$
61,336

 
$
67,642

Interest expense
 
 
 
 
 
NACoal
$
6,034

 
$
3,105

 
$
2,909

HBB
1,137

 
1,279

 
2,635

KC
367

 
390

 
479

NACCO and Other
28

 
1

 
65

Total
$
7,566

 
$
4,775

 
$
6,088

Interest income
 
 
 
 
 
NACoal
$
(823
)
 
$
(19
)
 
$
(152
)
HBB
(4
)
 
(1
)
 

KC

 

 

NACCO and Other
(4
)
 
(205
)
 
(10
)
Total
$
(831
)
 
$
(225
)
 
$
(162
)
Other (income) expense, including closed mine obligations
 
 
 
 
 
NACoal
$
44

 
$
(1,013
)
 
$
(1,325
)
HBB
1,136

 
462

 
344

KC
65

 
70

 
86

NACCO and Other
2,284

 
1,547

 
4,583

Total
$
3,529

 
$
1,066

 
$
3,688

Income tax provision (benefit)
 

 
 

 
 

NACoal
$
(43,308
)
 
$
3,462

 
$
9,037

HBB
10,359

 
14,127

 
11,636

KC
(2,904
)
 
(4,479
)
 
(1,990
)
NACCO and Other
(2,420
)
 
(1,858
)
 
(2,989
)
Eliminations
(182
)
 
18

 
171

Total
$
(38,455
)
 
$
11,270

 
$
15,865

Income (loss) from continuing operations, net of tax
 

 
 

 
 

NACoal
$
(50,977
)
 
$
31,926

 
$
32,770

HBB
23,144

 
25,093

 
21,200

KC
(4,603
)
 
(6,884
)
 
(3,087
)
NACCO and Other
(5,344
)
 
(5,718
)
 
(8,649
)
Eliminations
(338
)
 
33

 
(71
)
Total
$
(38,118
)
 
$
44,450

 
$
42,163


F-42



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

 
2014
 
2013
 
2012
Total assets
 
 
 
 
 
NACoal
$
389,964

 
$
419,786

 
$
368,652

HBB
270,265

 
228,891

 
215,503

KC
56,260

 
70,014

 
83,977

NACCO and Other
96,918

 
131,085

 
154,605

Eliminations
(42,887
)
 
(39,820
)
 
(46,431
)
Total
$
770,520

 
$
809,956

 
$
776,306

Depreciation, depletion and amortization
 
 
 
 
 
NACoal
$
22,003

 
$
16,601

 
$
10,849

HBB
2,693

 
3,475

 
3,113

KC
3,048

 
4,162

 
3,611

NACCO and Other
326

 
334

 
419

Total
$
28,070

 
$
24,572

 
$
17,992

Capital expenditures, excluding acquisitions of business
 
 
 
 
 
NACoal
$
51,228

 
$
52,748

 
$
37,125

HBB
4,516

 
2,313

 
3,223

KC
1,193

 
2,150

 
3,872

NACCO and Other
563

 
238

 
462

Total
$
57,500

 
$
57,449

 
$
44,682

Data By Geographic Region
No single country outside of the U.S. comprised 10% or more of the Company's revenues from unaffiliated customers.
 
United
States
 
Other
 
Consolidated
2014
 
 
 
 
 
Revenues from unaffiliated customers, based on the customers’ location
$
779,890

 
$
116,892

 
$
896,782

Long-lived assets
$
182,116

 
$
5,780

 
$
187,896

2013
 
 
 
 
 
Revenues from unaffiliated customers, based on the customers’ location
$
813,609

 
$
119,057

 
$
932,666

Long-lived assets
$
246,902

 
$
5,486

 
$
252,388

2012
 
 
 
 
 
Revenues from unaffiliated customers, based on the customers’ location
$
746,800

 
$
126,564

 
$
873,364

Long-lived assets
$
197,141

 
$
6,034

 
$
203,175



F-43



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

NOTE 18— Quarterly Results of Operations (Unaudited)

A summary of the unaudited results of operations for the year ended December 31 is as follows:
 
2014
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Revenues
 
 
 
 
 
 
 
NACoal
$
39,872

 
$
49,780

 
$
49,840

 
$
33,210

HBB
101,325

 
118,385

 
135,155

 
204,818

KC
36,876

 
32,804

 
37,551

 
61,314

Eliminations
(660
)
 
(599
)
 
(832
)
 
(2,057
)
 
$
177,413

 
$
200,370

 
$
221,714

 
$
297,285

Gross profit
$
36,171

 
$
36,523

 
$
46,543

 
$
65,835

Earnings of unconsolidated mines
$
12,438

 
$
11,567

 
$
12,064

 
$
12,327

Operating profit (loss)
 
 
 
 
 
 
 
NACoal
$
6,653

 
$
183

 
$
4,362

 
$
(100,228
)
HBB
937

 
2,251

 
9,531

 
23,053

KC
(6,514
)
 
(4,255
)
 
(1,429
)
 
5,123

NACCO and Other
(1,352
)
 
(2,004
)
 
(1,073
)
 
(1,027
)
Eliminations
(309
)
 
(66
)
 
(68
)
 
(77
)
 
$
(585
)
 
$
(3,891
)
 
$
11,323

 
$
(73,156
)
 
 
 
 
 
 
 
 
NACoal
$
5,705

 
$
(75
)
 
$
3,185

 
$
(59,792
)
HBB
350

 
1,359

 
6,008

 
15,427

KC
(4,033
)
 
(2,657
)
 
(966
)
 
3,053

NACCO and Other
(1,197
)
 
(1,673
)
 
(906
)
 
(1,568
)
Eliminations
(2,349
)
 
(578
)
 
378

 
2,211

Net income (loss)
$
(1,524
)
 
$
(3,624
)
 
$
7,699

 
$
(40,669
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.19

 
$
0.47

 
$
1.02

 
$
(5.57
)
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share
$
0.19

 
$
0.47

 
$
1.02

 
$
(5.57
)

During the fourth quarter of 2014, NACoal's long-lived asset evaluation resulted in the Company recording a non-cash, asset impairment charge of $105.1 million on the line Reed Minerals long-lived asset impairment charge in the Consolidated Statements of Operations. See Note 5 , Note 6 and Note 10 for further discussion of the Company's long-lived asset impairment.
The significant increase in gross profit of HBB and KC in the fourth quarter of 2014 compared with the prior quarters of 2014 is primarily due to the seasonal nature of of their businesses.

During the second quarter of 2014, the Company recorded a $1.1 million charge included in Selling, general and administrative expenses in NACCO and Other to correct a prior period accounting error related to an increase in the estimated liability for certain frozen deferred compensation plans. Management, quantitatively and qualitatively, assessed the materiality of the error and the correction thereof and concluded that the effect of the previous accounting treatment was not material to prior periods, expected 2014 full-year results, or trend of earnings and determined no material misstatements existed in those prior periods and no restatement of those prior period financial statements was necessary.




F-44



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)


 
2013
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Revenues
 
 
 
 
 
 
 
NACoal
$
51,147

 
$
43,567

 
$
52,870

 
$
46,067

HBB
106,151

 
114,651

 
134,099

 
192,889

KC
39,711

 
38,380

 
42,618

 
75,324

Eliminations
(957
)
 
(581
)
 
(973
)
 
(2,297
)
 
$
196,052

 
$
196,017

 
$
228,614

 
$
311,983

Gross profit
$
46,261

 
$
47,630

 
$
49,219

 
$
78,181

Earnings of unconsolidated mines
$
12,098

 
$
10,281

 
$
11,808

 
$
12,242

Operating profit (loss)
 
 
 
 
 
 
 
NACoal
$
11,785

 
$
11,196

 
$
9,740

 
$
4,740

HBB
2,668

 
4,005

 
11,788

 
22,499

KC
(4,980
)
 
(5,407
)
 
(3,658
)
 
3,142

NACCO and Other
(2,436
)
 
(1,099
)
 
(1,155
)
 
(1,543
)
Eliminations
(15
)
 
108

 
(33
)
 
(9
)
 
$
7,022

 
$
8,803

 
$
16,682

 
$
28,829

 
 
 
 
 
 
 
 
NACoal
$
9,591

 
$
8,952

 
$
7,794

 
$
5,589

HBB
1,501

 
1,985

 
7,427

 
14,180

KC
(3,267
)
 
(2,403
)
 
(2,822
)
 
1,608

NACCO and Other
(2,003
)
 
(1,048
)
 
(1,137
)
 
(1,530
)
Eliminations
(1,400
)
 
(2,339
)
 
1,063

 
2,709

Net income
$
4,422

 
$
5,147

 
$
12,325

 
$
22,556

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.53

 
$
0.63

 
$
1.54

 
$
2.86

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.53

 
$
0.63

 
$
1.54

 
$
2.85

The significant increase in gross profit in the fourth quarter of 2013 compared with the prior quarters of 2013 is primarily due to the seasonal nature of HBB's and KC's businesses.
During the third quarter of 2013, the Company recorded a $1.7 million million pre-tax curtailment gain, of which $1.6 million and $0.1 million were recorded by NACoal and NACCO and Other, respectively. See Note 16 for further information.
During the fourth quarter of 2013, NACoal recorded a $4.0 million non-cash, goodwill impairment charge related to its Reed Minerals reporting unit. See Note 6 and Note 10 for further information.


F-45



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

NOTE 19— Parent Company Condensed Balance Sheets

The condensed balance sheets of NACCO, the parent company, at December 31 are as follows:
 
2014
 
2013
ASSETS
 
 
 
Cash and cash equivalents
$
53,415

 
$
94,035

Other current assets
1,570

 
946

Investment in subsidiaries
 
 
 
HBB
49,613

 
52,265

KC
32,170

 
36,772

NACoal
103,056

 
138,355

Other
13,142

 
14,792

 
197,981

 
242,184

Property, plant and equipment, net
1,253

 
1,477

Other non-current assets
8,078

 
5,707

Total Assets
$
262,297

 
$
344,349

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
$
7,636

 
$
12,750

Current intercompany accounts payable, net
9,756

 
304

Note payable to Bellaire
18,700

 
20,450

Other non-current liabilities
14,732

 
13,065

Stockholders’ equity
211,473

 
297,780

Total Liabilities and Stockholders’ Equity
$
262,297

 
$
344,349

The credit agreements at NACoal, HBB and KC allow the transfer of assets to NACCO under certain circumstances. The amount of NACCO's investment in NACoal, HBB, KC and NACCO and Other that was restricted at December 31, 2014 totaled approximately $186.8 million . The amount of unrestricted cash available to NACCO included in “Investment in subsidiaries” was $0.5 million at December 31, 2014 . Dividends, advances and management fees from its subsidiaries are the primary sources of cash for NACCO.
NOTE 20— Related Party Transactions

NACoal's wholly owned unconsolidated subsidiaries each meet the definition of a variable interest entity. See Note 1 for a discussion of these entities. The income taxes resulting from the operations of the Unconsolidated Mines are solely the responsibility of the Company. The pre-tax income from the Unconsolidated Mines, excluding NoDak, is reported on the line “Earnings of unconsolidated mines” in the Consolidated Statements of Operations, with related income taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Mines, excluding NoDak, above operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "Income from other unconsolidated affiliates" in the "Other (income) expense" section of the Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes. See Note 1 for a discussion of NACC India.

The investment in the Unconsolidated Mines and related tax positions totaled $28.2 million and $33.1 million at December 31, 2014 and 2013 , respectively, and is included on the line “Other Non-current Assets” in the Consolidated Balance Sheets. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $4.0 million , $5.4 million and $3.2 million at December 31, 2014 , 2013 and 2012 , respectively.

F-46



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)

Summarized financial information for the Unconsolidated Mines is as follows:
 
2014
 
2013
 
2012
Statement of Operations
 
 
 
 
 
Revenues
$
579,031

 
$
577,436

 
$
543,892

Gross profit
$
74,244

 
$
74,870

 
$
74,542

Income before income taxes
$
48,592

 
$
47,953

 
$
46,819

Net income
$
37,067

 
$
37,468

 
$
35,616

Balance Sheet
 
 
 
 
 
Current assets
$
143,105

 
$
147,370

 
 
Non-current assets
$
781,475

 
$
737,851

 
 
Current liabilities
$
177,659

 
$
148,264

 
 
Non-current liabilities
$
742,938

 
$
731,525

 
 
NACoal received dividends of $38.3 million and $35.2 million from the Unconsolidated Mines in 2014 and 2013 , respectively.
Legal services rendered by Jones Day approximated $1.9 million , $1.1 million and $3.0 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. A director of the Company was also Of Counsel with this law firm during 2014, 2013 and 2012 .

NOTE 21— Acquisitions

Weston Brands: On December 16, 2014, HBB completed the asset acquisition of Weston Products, LLC, which HBB refers to as Weston Brands, in exchange for cash consideration of $25.4 million , of which $25.0 million was paid at closing. The final purchase price is subject to customary post-closing adjustments based on net working capital and EBITDA calculations. The net working capital and EBITDA adjustment is estimated to be $0.4 million and will be paid in 2015.

Weston Brands markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston ® brand as well as several private label brands. The results of Weston Brands operations have been included in the Company's Consolidated Financial Statements since the date of acquisition.

The Weston Brands acquisition allows HBB to expand beyond its small kitchen and commercial appliance businesses into the growing, hunting, wild game processing, specialty food processing and specialty housewares industries.  The acquisition is also fully supportive of HBB's strategic initiatives, including enhancing placements in the North American consumer market, enhancing internet sales and participating in the only-the-best market.  

During 2014, the Company incurred $0.4 million in acquisition costs related to Weston Brands, which is included in Selling, general and administrative expenses in the Consolidated Statement of Operations.

The goodwill arising from the acquisition is expected to be deductible for tax purposes.

F-47



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, Except as noted and Per Share and Percentage Data)


The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed of Weston Brands as of the acquisition date:
Accounts receivable
$
6,100

Inventory
5,113

Other current assets
658

Property, plant and equipment
590

Intangible assets
10,100

Total assets acquired
22,561

Current liabilities
3,367

Total liabilities assumed
3,367

Net assets acquired
19,194

Purchase price
25,447

Goodwill
$
6,253


The determination of the fair value of assets acquired and liabilities assumed as of the December 16, 2014 acquisition date is preliminary as the Company has not yet finalized its analysis of the Weston Brands acquisition, including the valuation of identified intangibles. The final purchase price is subject to customary post-closing adjustments based on net working capital and EBITDA calculations. The final allocation is expected to be completed as soon as practicable but no later than 12 months after the acquisition date. See Note 6 for further discussion of the intangible assets acquired.

The results of Weston Brands included in the Company's Consolidated Statement of Operations from the acquisition date through December 31, 2014 are as follows:
Revenues
$
1,102

Operating loss
$
(193
)

NCOA: During 2013, NACoal acquired the equipment of NCOA in exchange for the assumption of outstanding debt of $9.7 million associated with the acquired equipment. The outstanding debt was repaid concurrently with the acquisition of the equipment utilizing borrowings under NACoal's existing unsecured revolving line of credit. In April 2014, NACoal acquired coal reserves and prepaid royalties and assumed certain reclamation obligations of NCOA. The acquisition of NCOA did not include any additional cash consideration. This acquisition, which is being accounted for as a business combination, provides additional coal reserves in Alabama and additional mining equipment with a fair value of $16.6 million as of the acquisition date. The Company also acquired Other non-current assets with a fair value of $3.3 million , assumed reclamation obligations with a fair value of $7.3 million and Other liabilities with a fair value of $12.6 million as of the acquisition date.

During 2014 and 2013, the Company incurred $0.1 million and $0.3 million , respectively, in acquisition costs related to NCOA, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.



F-48





SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS

 
December 31
 
2014
 
2013
 
(In thousands)
ASSETS
 
 
 
Cash and cash equivalents
$
53,415

 
$
94,035

Other current assets
1,570

 
946

Investment in subsidiaries
 
 
 
HBB
49,613

 
52,265

KC
32,170

 
36,772

NACoal
103,056

 
138,355

Other
13,142

 
14,792

 
197,981

 
242,184

Property, plant and equipment, net
1,253

 
1,477

Other non-current assets
8,078

 
5,707

Total Assets
$
262,297

 
$
344,349

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities
$
7,636

 
$
12,750

Current intercompany accounts payable, net
9,756

 
304

Note payable to Bellaire
18,700

 
20,450

Other non-current liabilities
14,732

 
13,065

Stockholders’ equity
211,473

 
297,780

Total Liabilities and Stockholders’ Equity
$
262,297

 
$
344,349

See Notes to Parent Company Condensed Financial Statements.



F-49


SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

 
Year Ended December 31
 
2014
 
2013
 
2012
 
(In thousands)
(Income) expense:
 
 
 
 
 
Intercompany interest expense
$
1,305

 
$
1,431

 
$
1,501

Other, net
(276
)
 
(471
)
 
3,021

 
1,029

 
960

 
4,522

Administrative and general expenses
4,862

 
5,670

 
6,569

Loss before income taxes
(5,891
)
 
(6,630
)
 
(11,091
)
Income tax benefit
(1,764
)
 
(1,527
)
 
(1,754
)
Net loss before equity in earnings of subsidiaries
(4,127
)
 
(5,103
)
 
(9,337
)
Equity in earnings of subsidiaries
(33,991
)
 
49,553

 
51,500

Income (loss) from continuing operations, net of tax
(38,118
)
 
44,450

 
42,163

Discontinued operations, net of tax

 

 
66,535

Net income (loss)
(38,118
)
 
44,450

 
108,698

Foreign currency translation adjustment
(1,896
)
 
(229
)
 
145

Deferred gain on available for sale securities
442

 
729

 
265

Current period cash flow hedging activity, net of $838 tax benefit in 2014, $477 tax expense in 2013 and $2,471 tax expense in 2012
(1,518
)
 
810

 
7,658

Reclassification of hedging activities into earnings, net of $489 tax benefit in 2014, $95 tax benefit in 2013 and $2,630 tax expense in 2012
898

 
152

 
(2,757
)
Current period pension and postretirement plan adjustment, net of $3,292 tax benefit in 2014, $5,531 tax expense in 2013 and $1,553 tax benefit in 2012
(6,483
)
 
8,022

 
(1,716
)
Curtailment gain into earnings, net of $718 tax expense in 2013

 
(983
)
 

Reclassification of pension and postretirement adjustments into earnings, net of $313 tax benefit in 2014, $740 tax benefit in 2013 and $2,056 tax benefit in 2012
627

 
1,101

 
5,885

Comprehensive Income (loss)
$
(46,048
)
 
$
54,052

 
$
118,178

See Notes to Parent Company Condensed Financial Statements.


F-50



SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS

 
Year Ended December 31
 
2014
 
2013
 
2012
 
(In thousands)
Operating Activities
 
 
 
 
 
Income (loss) from continuing operations
$
(38,118
)
 
$
44,450

 
$
42,163

Equity in earnings of subsidiaries
(33,991
)
 
49,553

 
51,500

Parent company only net loss
(4,127
)
 
(5,103
)
 
(9,337
)
Net changes related to operating activities
5,710

 
(1,858
)
 
4,428

Net cash provided by (used for) operating activities
1,583

 
(6,961
)
 
(4,909
)
Investing Activities
 
 
 
 
 
Expenditures for property, plant and equipment
(103
)
 
(238
)
 
(462
)
Net cash used for investing activities
(103
)
 
(238
)
 
(462
)
Financing Activities
 
 
 
 
 
Cash dividends received from subsidiaries
22,300

 
20,000

 
40,623

Cash dividends received from Hyster-Yale

 

 
5,000

Notes payable to Bellaire
(1,750
)
 

 
(1,980
)
Capital contributions to subsidiaries
(19,800
)
 

 

Purchase of treasury shares
(35,075
)
 
(31,306
)
 
(3,178
)
Cash dividends paid
(7,755
)
 
(8,104
)
 
(45,130
)
Other
(20
)
 
(15
)
 
19

Net cash used for financing activities
(42,100
)
 
(19,425
)
 
(4,646
)
Cash and cash equivalents
 
 
 
 
 
Decrease for the period
(40,620
)
 
(26,624
)
 
(10,017
)
Balance at the beginning of the period
94,035

 
120,659

 
130,676

Balance at the end of the period
$
53,415

 
$
94,035

 
$
120,659

See Notes to Parent Company Condensed Financial Statements.

F-51



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, 2014 , 2013 AND 2012
The notes to Consolidated Financial Statements, incorporated in Item 15 of this Form 10-K, are hereby incorporated by reference into these Notes to Parent Company Condensed Financial Statements.
NOTE A — ACCOUNTING POLICIES
NACCO Industries, Inc. (the parent company or “NACCO”) is a holding company with subsidiaries that operate in three principal industries. 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 its subsidiaries.
NOTE C — UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in “Investment in subsidiaries,” was $0.5 million at December 31, 2014 and was in addition to the $53.4 million  of cash included in the Parent Company Condensed Balance Sheet at December 31, 2014 .





F-52


SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, 2014 , 2013 AND 2012
 
 
 
 
Additions
 
 
 
 
 
 
Description
 
Balance at Beginning of Period
 
Charged to
Costs and
Expenses
 
Charged to
Other Accounts
— Describe
 
Deductions
— Describe
 
Balance at
End of
Period (C)
(In thousands)
2014
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
846

 
$
2,035

 
$

 
$
150

 
(A) 
 
$
2,731

Allowance for discounts, adjustments and returns
 
$
12,859

 
$
23,629

 
$

 
$
21,440

 
(B) 
 
$
15,048

2013
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
955

 
$
(5
)
 
$

 
$
104

 
(A) 
 
$
846

Allowance for discounts, adjustments and returns
 
$
15,194

 
$
20,476

 
$
60

 
$
22,871

 
(B) 
 
$
12,859

2012
 
 
 
 
 
 
 
 
 
 
 
 
Reserves deducted from asset accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
949

 
$
46

 
$
7

 
$
47

 
(A) 
 
$
955

Allowance for discounts, adjustments and returns
 
$
13,296

 
$
19,897

 
$
379

 
$
18,378

 
(B) 
 
$
15,194


(A)
Write-offs, net of recoveries.
(B)
Payments and customer deductions for product returns, discounts and allowances.
(C)
Balances which are not required to be presented and those which are immaterial have been omitted.

F-53


EXHIBIT INDEX
(3) Articles of Incorporation and By-laws.
3.1(i) 
 
Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172.
3.1(ii) 
 
Amended and Restated By-laws of the Company are incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed by the Company on December 18, 2014, Commission File Number 1-9172.
(4) Instruments defining the rights of security holders, including indentures.
4.1
 
The Company by this filing agrees, upon request, to file with the Securities and Exchange Commission the instruments defining the rights of holders of long-term debt of the Company and its subsidiaries where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
4.2
 
The Mortgage and Security Agreement, dated April 8, 1976, between The Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively, as Mortgagee) is incorporated herein by reference to Exhibit 4(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172.
4.3
 
Amendment No. 1 to the Mortgage and Security Agreement, dated as of December 15, 1993, between Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively, as Mortgagee) is incorporated herein by reference to Exhibit 4(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File Number 1-9172.
4.4
 
Amended and Restated Stockholders' Agreement, dated as of September 28, 2012, among the signatories thereto, NACCO Industries, Inc., as depository, and NACCO Industries, Inc. is incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed by the Company on October 4, 2012, Commission File Number 1-9172.

(10) Material Contracts.
10.1* 
 
The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.2* 
 
Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under the NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.3* 
 
Form of Non-Qualified Stock Option Agreement under the NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.4* 
 
The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.5* 
 
Form of Non-Qualified Stock Option Agreement under the NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.6* 
 
Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under the NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(viii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
10.7* 
 
NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Amended and Restated March 1, 2012) is incorporated herein by reference to Appendix B to NACCO's Definitive Proxy Statement, filed by NACCO on March 16, 2012, Commission File Number 1-9172.
10.8* 
 
NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated March 1, 2012) is incorporated herein by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 16, 2012, Commission File Number 1-9172.
10.9* 
 
NACCO Industries, Inc. Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 11, 2011) is incorporated herein by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 18, 2011, Commission File Number 1-9172.

X-1


10.10*
 
NACCO Industries, Inc. Executive Excess Retirement Plan (Effective as of September 28, 2012) is incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
10.11*
 
Amendment No. 1 to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2012) is incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
10.12*
 
Form of Award Agreement for the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Amended and Restated Effective March 1, 2012) is incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
10.13*
 
Form of Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2012)**

10.14*
 
Form of Non-Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2012)**
10.15
 
Separation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc is incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.16
 
Tax Allocation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc. is incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.17*
 
NACCO Industries, Inc. Annual Incentive Compensation Plan (Effective as of September 28, 2012) is incorporated herin by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 22, 2013, Commission File Number 1-9172.
10.18*
 
The Retirement Benefit Plan for Alfred M. Rankin, Jr. (Amended and Restated Effective as of January 1, 2014) is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
10.19*
 
NACCO Industries, Inc. Unfunded Benefit Plan (Amended and Restated Effective as of January 1, 2014) is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
10.20* 
 
The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172.
10.21*
 
The North American Coal Corporation Value Appreciation Plan For Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172.
10.22*
 
Amendment No. 1 to The North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, Commission File Number 1-9172.
10.23*
 
Amendment No. 2 to The North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on November 4, 2009, Commission File Number 1-9172.
10.24*
 
Amendment No. 1 to The North America Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Commission File Number 1-9172.
10.25*
 
The North American Coal Corporation Annual Incentive Compensation Plan (Effective January 1, 2010), is incorporated herein by reference to Appendix E to NACCO's Definitive Proxy Statement, filed by the Company on March 26, 2010, Commission File Number 1-9172.
10.26*
 
Amendment No. 3 to The North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 (Amended and Restated Effective January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on May 5, 2010, Commission File Number 1-9172.
10.27*
 
Amendment No. 4 to The North American Coal Corporation Value Appreciation Plan for Years 2006 to 2015 is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on November 12, 2010, Commission File Number 1-9172.
10.28*
 
Amendment No. 2 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, Commission File Number 1-9172.

X-2


10.29
 
Share and Membership Interest Purchase Agreement by and among TRU Energy Services, LLC, as Buyer, the sellers party thereto, and the trustees and beneficiaries party thereto dated as of August 31, 2012 is incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on September 5, 2012, Commission File Number 1-9172.
10.30
 
Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
10.31
 
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.+
10.32
 
Second Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
10.33
 
Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.34
 
First Amendment to the Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of June 1, 1994, is incorporated herein by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.35
 
Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of April 1, 1998, is incorporated herein by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
10.36
 
Pay Scale Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of September 29, 2005, is incorporated herein by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.37
 
Consent and Agreement by and among Mississippi Lignite Mining Company, Choctaw Generation Limited Partnership, SE Choctaw L.L.C. and Citibank, N.A., dated as of December 20, 2002, is incorporated herein by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.38
 
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.+
10.39
 
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.
10.40
 
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.
10.41
 
Restatement of Option Agreement by and among The Falkirk Mining Company, Cooperative Power Association, United Power Association, and the State of North Dakota, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.42
 
Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern Electric Power Company, dated as of January 1, 2008, is incorporated herein by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
10.43
 
Amendment No. 1 to Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern Electric Power Company, dated as of October 18, 2013**
10.44
 
Option Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981, is incorporated herein by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.45
 
Addendum to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981 is incorporated herein by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.

X-3


10.46
 
Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of December 2, 1996, is incorporated herein by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.47
 
Second Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Regions Bank, dated as of January 1, 2008, is incorporated herein by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.48
 
Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company, Texas Commerce Bank-Longview, Nortex Mining Company and The Sabine Mining Company, dated as of June 30, 1988, is incorporated herein by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.49
 
Lignite Sales Agreement between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co. and Northwestern Corporation dated as of October 10, 2012 is incorporated herein by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed by the Company on March 6, 2013, Commission File Number 1-9172.++
10.50
 
Lignite Sales Agreement between Mississippi Lignite Mining Company and KMRC RH, LLC, dated as of February 28, 2013 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 1, 2013, Commission File Number 1-9172.+++
10.51
 
Letter Agreement, dated January 1, 2015, between Mississippi Lignite Mining Company and KMRC RH, LLC. **
10.52
 
Modification and Omnibus Agreement between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of February 28, 2013 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 1, 2013, Commission File Number 1-9172.
10.53*
 
Amendment No. 3 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on October 1, 2013, Commission File Number 1-9172.
10.54*
 
Amendment No. 4 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) **
10.55
 
Amended and Restated Credit Agreement by and among The North American Coal Corporation and the Lenders party thereto and PNC Capital Markets LLC, as Lead Arranger and Bookrunner, PNC Bank, National Association, as Administrative Agent, and KeyBank National Association and Regions Bank, as Co-Syndication Agents, dated as of November 22, 2013 is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on November 27, 2013, Commission File Number 1-9172.
10.56*
 
The North American Coal Corporation Excess Retirement Plan (Amended and Restated Effective January 1, 2014) is incorporated herein by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Commission File Number 1-9172.
10.57
 
First Amendment to Lignite Sales Agreement, dated as of January 30, 2014, between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc. and NorthWestern Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K, filed by the Company on January 30, 2014, Commission File Number 1-9172.
10.58*
 
The North American Coal Corporation Deferred Compensation Plan for Management Employees (Amended and Restated Effective January 1, 2014) is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
10.59
 
Credit Agreement, dated as of April 29, 2010, among The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Retail Finance, LLC and the other lenders thereto is incorporated herein by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.60
 
First Amendment to Credit Agreement, dated as of August 7, 2012, among The Kitchen Collection, LLC, as successor to The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Bank, National Association, as successor to Wells Fargo Retail Finance, LLC, and the other lenders thereto is incorporated herein by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
10.61
 
Second Amendment to Credit Agreement, dated as of September 19, 2014, among The Kitchen Collection, LLC, as successor to The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Bank, National Association, as successor to Wells Fargo Retail Finance, LLC, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on September 19, 2014, Commission File Number 1-9172.

X-4


10.62
 
Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Capital Finance, LLC, as Sole Lead Arranger and Sole Lead Bookrunner, the Lenders that are Parties thereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of May 31, 2012 is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
10.63
 
Amended and Restated Guaranty and Security Agreement, dated as of May 31, 2012, among Hamilton Beach Brands, Inc. and Hamilton Beach, Inc., as Grantors, and Wells Fargo Bank, National Association, as Administrative Agent is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
10.64
 
Amended and Restated Canadian Guarantee and Security Agreement, dated as of May 31, 2012, among Hamilton Beach Brands Canada, Inc., as Grantor, and Wells Fargo Bank, National Association, as Administrative Agent is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
10.65
 
Amendment No.1 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of July 29, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on July 30, 2014, Commission File Number 1-9172.
10.66
 
Amendment No.2 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of November 20, 2014 **
10.67*
 
The Hamilton Beach Brands, Inc. 2012 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on March 15, 2012, Commission File Number 1-9172.
10.68*
 
The Hamilton Beach Brands, Inc. 2013 Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on March 27, 2013, Commission File Number 1-9172.
10.69*
 
Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (Amended and Restated Effective as of January 1, 2014) is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
10.70*
 
The Hamilton Beach Brands, Inc. Annual Incentive Compensation Plan (Effective January 1, 2014) 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 9, 2014, Commission File Number 1-9172.
10.71*
 
The Hamilton Beach Brands, Inc. Excess Retirement Plan (As Amended and Restated Effective January 1, 2015)**

X-5


(21) Subsidiaries. A list of the subsidiaries of the Company is attached hereto as Exhibit 21.
(23) Consents of experts and counsel.
23.1
 
Consents of experts and counsel.
(24) Powers of Attorney.
24.1
 
A copy of a power of attorney for Scott S. Cowen is attached hereto as Exhibit 24.1.
24.2
 
A copy of a power of attorney for John P. Jumper is attached hereto as Exhibit 24.2.
24.3
 
A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24.3.
24.4
 
A copy of a power of attorney for Richard de J. Osborne is attached hereto as Exhibit 24.4.
24.5
 
A copy of a power of attorney for James A. Ratner is attached hereto as Exhibit 24.5.
24.6
 
A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24.6.
24.7
 
A copy of a power of attorney for David F. Taplin is attached hereto as Exhibit 24.7.
24.8
 
A copy of a power of attorney for David B.H. Williams is attached hereto as Exhibit 24.8.
(31) Rule 13a-14(a)/15d-14(a) Certifications.
31(i)(1) 
 
Certification of Alfred M. Rankin, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(1).
31(i)(2) 
 
Certification of Elizabeth I. Loveman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(2).
(32)
 
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Alfred M. Rankin, Jr. and Elizabeth I. Loveman.
(95)
 
Mine Safety Disclosure Exhibit is attached hereto as Exhibit 95.
(99)
 
Other exhibits not otherwise required to be filed. Audited Combined Financial Statements for the Unconsolidated Mines of the North American Coal Corporation, dated December 31, 2014, 2013 and 2012 with Report of Independent Registered Public Accounting Firm is attached hereto as Exhibit 99.**
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
 
Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item15(b) of this Annual Report on Form 10-K.
 
 
 
**
 
Filed herewith.
 
 
 
+
 
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated March 27, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".
 
 
 
++
 
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated April 2, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".
 
 
 
+++
 
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 June 17, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".

X-6


Exhibit 10.13
NACCO Industries, Inc.

NACCO Industries Inc.
5875 Landerbrook Drive, Suite 220
Cleveland, Ohio 44124-4069
Attention: Secretary

Re:
[DATE] Grant of Award Shares Executive Long-Term Incentive Compensation Plan                     

The undersigned is an employee of NACCO Industries, Inc. (the “Company”) or one of its wholly-owned subsidiaries (together with the Company, the “Employers”) to whom grants of an award (the “Award”) consisting of [insert number] fully paid and nonassessable shares (the “Award Shares”) of Class A Common Stock, par value $1.00 per share, of the Company (“Class A Common”) were made on [DATE] by the Compensation Committee (the “Committee”) of the Board of Directors of the Company pursuant to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (the “Plan”). I hereby accept the Award and acknowledge to and agree with the Company as follows:
1.
Award/Surrender of Award Shares for Cashless Exercise . I acknowledge that the Committee has granted the Award to me subject to the terms of the Plan and the related Executive Long-Term Incentive Compensation Plan Guidelines for the [DATE] through [DATE] Award Term (the “[DATE] Guidelines”) and the terms of this Agreement. I hereby acknowledge the initial grant of [] shares of Class A Common under the Plan. Coincident with my receipt of the Award, I agreed to immediately and irrevocably surrendered [] Award Shares to the Company to be used to partially satisfy my income and employment withholding tax obligations with respect to the Award. As a result, upon receipt by the Company of this signed letter agreement I will receive a stock certificate for [] shares of Class A Common representing my non-surrendered Award Shares.

2.
Restrictions on Transfer . I represent and covenant that, other than a Transfer (as defined below) (a) by will or the laws of descent and distribution, (b) pursuant to a domestic relations order meeting the definition of a qualified domestic relations order under Section 206(d)(3)(B) of the Employee Retirement Income Security Act of 1974, as amended (“QDRO”), (c) to a trust (a “Trust”) for my benefit or the benefit of my spouse, my children or my grandchildren (provided that Award Shares transferred to such a Trust shall continue to remain subject to the transfer restrictions hereinafter set forth) or (d) as otherwise permitted under the Plan with the consent of the Committee (including, without limitation, a cashless surrender in order to satisfy tax withholding obligations), the Award Shares shall be non-transferable and I shall not make (or attempt to make) any sale, assignment, transfer, exchange, pledge, hypothecation or encumbrance of the Award Shares (collectively, a “Transfer”).

3.
Lapse of Restrictions . I acknowledge that the transfer restrictions on the non-surrendered Award Shares set forth in paragraph (2) above shall lapse for all purposes and shall be of no further force or effect upon the earliest to occur of: (a) December 31, [DATE]; (b) the date of my death or permanent disability; (c) five years after retirement in accordance with the terms of The Combined Defined Benefit Plan of NACCO Industries, Inc. and Its Subsidiaries (or, if I am not a member of such plan, five years after my termination of employment with the Employers after reaching age 60 with at least 15 years of service with the Employers) (or earlier with the approval of the Committee); (d) an extraordinary release of transfer restrictions pursuant to Section 8(d) of the Plan; (e) the Transfer of Award Shares pursuant to a QDRO, but only as to the shares so transferred and (f) a lapse of transfer restrictions as determined by the Committee in accordance with the Plan. As notice of such transfer restrictions, I acknowledge that there is affixed to each stock certificate representing Award Shares the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE NACCO INDUSTRIES, INC. EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN (“PLAN”). SUCH RESTRICTIONS ON TRANSFER UNDER THE PLAN SHALL LAPSE FOR ALL PURPOSES AND SHALL BE OF NO FURTHER FORCE OR EFFECT AFTER DECEMBER 31, [DATE], OR SUCH EARLIER TIME AS PROVIDED IN THE PLAN.
4.
Obligations. I agree that each Trust and I shall fulfill the obligations imposed with respect to Award Shares by the Plan, this Agreement and the [DATE] Guidelines.

1





5.
Rights. I understand that, subject to the transfer restrictions set forth herein, I shall have all of the rights of a holder of Class A Common with respect to the Award Shares, including the right to vote such shares, to receive any dividends paid thereon and to participate in any of the matters described in clauses (b) and (c) of Section 9 of the Plan. Any securities that I receive in respect to Award Shares in connection with any of such matters shall be deemed to be Award Shares, and shall be subject to the transfer restrictions set forth herein to the same extent and for the same period as if such securities were the original Award Shares with respect to which they were issued (unless such restrictions are modified or eliminated by the Committee).

6.
Surrender of Certificates. I understand that: (a) in the case of a Transfer under clause (a) or (b) of paragraph 2 above, on surrender to the Company by my successor or successors in interest to the Award Shares of the appropriate certificate or certificates reflecting the Award Shares, or (b) on surrender to the Company (or its delegate) of the appropriate certificate or certificates reflecting Award Shares with respect to which the transfer restrictions have otherwise lapsed in accordance with paragraph 3 above, the Company shall cause a new certificate or certificates to be issued without any legend referring to such restrictions.

7.
Withholding. In order that the applicable Employer may satisfy its withholding obligations with respect to the compensation income resulting from the grant of any Award Shares, I agree to surrender the number the of Award Shares listed in paragraph 1 above to partially satisfy my income and employment tax withholding obligations on my Award. In the event that the surrender of such Award Shares is insufficient to satisfy my withholding obligations, I authorize and direct the applicable Employer to withhold from any amounts otherwise payable to me such amounts of taxes with respect to the income attributable to such shares and at such time or times as may be required to be withheld, including, without limitation, taxes required to be withheld by reason of the compensation required to be reported for Federal income and employment tax purposes by me, all as determined in good faith in the sole judgment of the Company. If there are no such amounts otherwise payable to me, or if such amounts are insufficient, I will reimburse or indemnify the applicable Employer or make provision satisfactory to the Board of Directors or the Committee (or to any officer authorized for that purpose by the Board of Directors or the Committee) to reimburse or indemnify the applicable Employer for such amounts of taxes at such time and from time to time, as the Company may make demand for such reimbursement or indemnity. If and to the extent that in the sole judgment of the Board of Directors or the Committee (or any officer authorized for that purpose by the Board of Directors or the Committee) it appears advisable to do so, in order to enforce the Company’s rights under the Plan and this Agreement, the Company shall not issue or cause to be issued to me (or to my successor in interest), any new stock certificate without any legend referring to the transfer restrictions with respect to the Award Shares as to which such restrictions have lapsed, unless and until such amounts of taxes have been withheld from amounts otherwise payable to me (or any of my successors in interest), or I (or such successor in interest) reimburse or indemnify the applicable Employer for such amounts of such taxes or make other provisions for reimbursement or indemnification to the applicable Employer of such taxes, satisfactory in the sole judgment of the Board of Directors or the Committee (or such officer) exercised in good faith.

8.
No Right to Employment. I acknowledge that the grant of Award Shares to me does not in any way entitle me to continued employment with the Employers and does not limit or restrict any right that the Employers otherwise may have to terminate my employment.

 
 
 
[Name]
ACCEPTED [DATE]
NACCO INDUSTRIES, INC.
 
 
 
By:
 
[Officer/Title]
 



2



Exhibit 10.14
NACCO Industries, Inc.

NACCO Industries Inc.
5875 Landerbrook Drive, Suite 220
Cleveland, Ohio 44124-4069
Attention: Secretary

Re:
[YEAR] Grant of Award Shares Executive Long-Term Incentive Compensation Plan                     

The undersigned is an employee of NACCO Industries, Inc. (the “Company”) or one of its wholly-owned subsidiaries (together with the Company, the “Employers”) to whom grants of an award (the “Award”) consisting of [insert number] fully paid and nonassessable shares (the “Award Shares”) of Class A Common Stock, par value $1.00 per share, of the Company (“Class A Common”) were made on [DATE] by the Compensation Committee (the “Committee”) of the Board of Directors of the Company pursuant to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (the “Plan”). I hereby accept the Award and acknowledge to and agree with the Company as follows:
1.
Award . I acknowledge that the Committee has granted the Award to me subject to the terms of the Plan and the related Executive Long-Term Incentive Compensation Plan Guidelines for the [DATE] through [DATE] Award Term (the “[DATE] Guidelines”) and the terms of this Agreement, and I hereby acknowledge receipt of stock certificate numbered [] for [] shares of Class A Common representing the Award Shares.

2.
Restrictions on Transfer . I represent and covenant that, other than a Transfer (as defined below) (a) by will or the laws of descent and distribution, (b) pursuant to a domestic relations order meeting the definition of a qualified domestic relations order under Section 206(d)(3)(B) of the Employee Retirement Income Security Act of 1974, as amended (“QDRO”), (c) to a trust (a “Trust”) for my benefit or the benefit of my spouse, my children or my grandchildren (provided that Award Shares transferred to such a Trust shall continue to remain subject to the transfer restrictions hereinafter set forth) or (d) as otherwise permitted under the Plan with the consent of the Committee, the Award Shares shall be non-transferable and I shall not make (or attempt to make) any sale, assignment, transfer, exchange, pledge, hypothecation or encumbrance of the Award Shares (collectively, a “Transfer”).

3.
Lapse of Restrictions . I acknowledge that the transfer restrictions on the Award Shares set forth in paragraph (2) above shall lapse for all purposes and shall be of no further force or effect upon the earliest to occur of: (a) December 31, [YEAR]; (b) the date of my death or permanent disability; (c) five years after retirement in accordance with the terms of The Combined Defined Benefit Plan of NACCO Industries, Inc. and Its Subsidiaries (or, if I am not a member of such plan, five years after my termination of employment with the Employers after reaching age 60 with at least 15 years of service with the Employers) (or earlier with the approval of the Committee); (d) an extraordinary release of transfer restrictions pursuant to Section 8(d) of the Plan; (e) the Transfer of Award Shares pursuant to a QDRO, but only as to the shares so transferred and (f) a lapse of transfer restrictions as determined by the Committee in accordance with the Plan. As notice of such transfer restrictions, I acknowledge that there is affixed to each stock certificate representing Award Shares the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE NACCO INDUSTRIES, INC. EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN (“PLAN”). SUCH RESTRICTIONS ON TRANSFER UNDER THE PLAN SHALL LAPSE FOR ALL PURPOSES AND SHALL BE OF NO FURTHER FORCE OR EFFECT AFTER DECEMBER 31, [DATE], OR SUCH EARLIER TIME AS PROVIDED IN THE PLAN.
4.
Obligations. I agree that each Trust and I shall fulfill the obligations imposed with respect to Award Shares by the Plan, this Agreement and the [DATE] Guidelines.

5.
Rights. I understand that, subject to the transfer restrictions set forth herein, I shall have all of the rights of a holder of Class A Common with respect to the Award Shares, including the right to vote such shares, to receive any dividends paid thereon and to participate in any of the matters described in clauses (b) and (c) of Section 9 of the Plan. Any securities that I receive in respect to Award Shares in connection with any of such matters shall be deemed to be Award Shares, and

1




shall be subject to the transfer restrictions set forth herein to the same extent and for the same period as if such securities were the original Award Shares with respect to which they were issued (unless such restrictions are modified or eliminated by the Committee).

6.
Surrender of Certificates. I understand that: (a) in the case of a Transfer under clause (a) or (b) of paragraph 2 above, on surrender to the Company by my successor or successors in interest to the Award Shares of the appropriate certificate or certificates reflecting the Award Shares, or (b) on surrender to the Company (or its delegate) of the appropriate certificate or certificates reflecting Award Shares with respect to which the transfer restrictions have otherwise lapsed in accordance with paragraph 3 above, the Company shall cause a new certificate or certificates to be issued without any legend referring to such restrictions.

7.
Withholding. In order that the applicable Employer may satisfy its withholding obligations with respect to the compensation income resulting from the grant of any Award Shares, I authorize and direct the applicable Employer to withhold from any amounts otherwise payable to me such amounts of taxes with respect to the income attributable to such shares and at such time or times as may be required to be withheld, including, without limitation, taxes required to be withheld by reason of the compensation required to be reported for Federal income and employment tax purposes by me, all as determined in good faith in the sole judgment of the Company. If there are no such amounts otherwise payable to me, or if such amounts are insufficient, I will reimburse or indemnify the applicable Employer or make provision satisfactory to the Board of Directors or the Committee (or to any officer authorized for that purpose by the Board of Directors or the Committee) to reimburse or indemnify the applicable Employer for such amounts of taxes at such time and from time to time, as the Company may make demand for such reimbursement or indemnity. If and to the extent that in the sole judgment of the Board of Directors or the Committee (or any officer authorized for that purpose by the Board of Directors or the Committee) it appears advisable to do so, in order to enforce the Company’s rights under the Plan and this Agreement, the Company shall not issue or cause to be issued to me (or to my successor in interest), any new stock certificate without any legend referring to the transfer restrictions with respect to the Award Shares as to which such restrictions have lapsed, unless and until such amounts of taxes have been withheld from amounts otherwise payable to me (or any of my successors in interest), or I (or such successor in interest) reimburse or indemnify the applicable Employer for such amounts of such taxes or make other provisions for reimbursement or indemnification to the applicable Employer of such taxes, satisfactory in the sole judgment of the Board of Directors or the Committee (or such officer) exercised in good faith.

8.
No Right to Employment. I acknowledge that the grant of Award Shares to me does not in any way entitle me to continued employment with the Employers and does not limit or restrict any right that the Employers otherwise may have to terminate my employment.

 
 
 
[Name]
ACCEPTED [DATE]
NACCO INDUSTRIES, INC.
 
 
 
By:
 
[Officer/Title]
 




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Exhibit 10.43
                    

FIRST AMENDMENT TO THIRD RESTATEMENT
OF LIGNITE MINING AGREEMENT

THIS FIRST AMENDMENT TO THIRD RESTATEMENT OF LIGNITE MINING AGREEMENT between Southwestern Electric Power Company (“SWEPCO”) and The Sabine Mining Company (“SABINE”) is executed this 18 th day of October, 2013 ("First Amendment").

WITNESSETH

WHEREAS, Caddo Creek Resources Company, L.L.C., a wholly-owned subsidiary of The North American Coal Corporation, a Delaware corporation (“Caddo Creek”), an Affiliate of SABINE under the common control of North American Coal, is developing a surface lignite mine in close geographical proximity to the Mine operated by SABINE and located in SWEPCO’s Reserves;

WHEREAS, SABINE and Caddo Creek perform certain services for one another and desire to allocate portions of their respective supplies, labor costs and office costs for such services;

WHEREAS, SWEPCO desires to receive credit to the Cost of Production for the time and to the extent such Cost of Production is incurred while SABINE is performing any work related to the surface mine being operated by Caddo Creek; and

WHEREAS, SABINE desires for SWEPCO to pay as Cost of Production for the time and to the extent such Cost of Production is incurred by employees of Caddo Creek while performing work related to the Mine operated by SABINE located in SWEPCO’s Reserves.

AGREEMENT

NOW, THEREFORE, for and in consideration of the covenants contained in this First Amendment, SWEPCO and SABINE hereby agree as follows:

1.
Capitalized terms in this First Amendment that are not defined herein shall have the meaning assigned to them in the Third Restatement of Lignite Mining Agreement ("Agreement").

2.
The definition of “Caddo Creek” in Article I of the Agreement is hereby added as follows:

“(ss) “Caddo Creek” shall mean Caddo Creek Resources, L.L.C., a Nevada limited liability company, which is wholly-owned by The North American Coal Corporation and is an Affiliate of SABINE by or under common control.”

3.
Article III of the Agreement is hereby amended by adding the following additional paragraph to the end of Article III:

“SABINE’s primary responsibility shall always be to the Mine. SABINE shall not perform work for the mine operated by Caddo Creek unless SABINE reasonably believes such work will not be detrimental to or will not interfere with the operation of the Mine operated by SABINE in SWEPCO’s Reserves.”

4.    Article IX, Section 2(a)(i)(hh) of the Agreement is hereby deleted and replaced with the following:

“(hh) Reasonable and necessary services rendered by persons other than Affiliates of SABINE; however, reasonable and necessary services rendered by Caddo Creek as an Affiliate of SABINE, for the benefit of the Mine, are allowed costs subject to the other limitations herein and must be approved by SWEPCO in writing."

5.
Article IX, 2(a)(i) is hereby amended by the addition of the following language to the end of the first full paragraph on page 23 of the Agreement at line 10:

“Additionally, there shall be credited to costs under this Subsection 2(a) any costs of employees of SABINE for the time and to the extent they perform functions for Caddo Creek (rather than the Mine operated by SABINE). There shall also be credited to costs under this Subsection 2(a) office costs and shop and consumable supply costs incurred for work performed for the benefit of the mine operated by Caddo Creek (rather than the Mine operated by SABINE).”

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6.
Article IX, Section 2(a)(iii)(b) of the Agreement is hereby amended by adding the following to the end of the paragraph:

“Notwithstanding the foregoing, any general and administrative costs of employees of Caddo Creek for the time and to the extent they perform functions relating to SABINE or the Agreement shall not be included within the fixed corporate general and administrative amount of $668,430, but shall be included in the Cost of Production.”

7.
Except as modified by this First Amendment, all terms and provisions of the Agreement shall remain in full force and effect.

8. This First Amendment may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.


IN WITNESS WHEREOF, the parties, with the intent to be bound hereby, have executed this First Amendment as of the date first above written.



SOUTHWESTERN ELECTRIC POWER COMPANY

                        
By:
/s/ Timothy K. Light
Name:
Timothy K. Light
Its:
Vice President
                

                
THE STATE OF TEXAS

COUNTY OF HARRISON

BEFORE ME, the undersigned authority, on this day personally appeared Timothy K. Light, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of SOUTHWESTERN ELECTRIC POWER COMPANY, a Delaware Corporation and that he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of October, 2013.


                        
By:
/s/ Linda S. Campbell
Name:
Linda S. Campbell
 
NOTARY PUBLIC
 
My Commission Expires: 02-27-2016
                                    
                                

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THE SABINE MINING COMPANY

                        
By:
/s/ Rick J. Ziegler
Name:
Rick J. Ziegler
Its:
President
                

                
THE STATE OF TEXAS

COUNTY OF HARRISON

BEFORE ME, the undersigned authority, on this day personally appeared Rick J. Ziegler, known to me to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of THE SABINE MINING COMPANY, a Nevada Corporation, and that he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE this 18th day of October, 2013.


                        
By:
/s/ Linda S. Campbell
Name:
Linda S. Campbell
 
NOTARY PUBLIC
 
My Commission Expires: 02-27-2016

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Exhibit 10.51



KMRC RH, LLC
4111 E. 37th Street North
Wichita, KS 67220


January 1, 2015

Mississippi Lignite Mining Company
1000 McIntire Road
Ackerman, MS 39735-0908
Attention: Dave Liffrig, General Manager
Re:     Refined Coal Facility - Red Hills; Lignite Sales Agreement; Lignite Inventory
Reference is made to (i) the Lignite Sales Agreement (the “ Producer Coal Supply Agreement ”), dated February 28, 2013, between Mississippi Lignite Mining Company (“ MLMC ”) and KMRC RH, LLC (“ KMRC ”) and (ii) the Blocked Account Control Agreement, dated February 19, 2013, by and among KMRC, MLMC and JPMorgan Chase, N.A. (the “ Control Agreement ”) All capitalized terms used herein but not defined have the meanings set forth in the Producer Coal Supply Agreement.
Pursuant to the Producer Coal Supply Agreement, MLMC agreed to sell, and KMRC agreed to purchase, Dedicated Lignite or Alternative Fuel on the terms and subject to the conditions set forth in the Producer Coal Supply Agreement. Also pursuant to the Producer Coal Supply Agreement, with limited exceptions, all proceeds from the sale of Refined Coal or Backup Fuel (as each such term is defined in the Refined Coal Sale Agreement) to CGLP pursuant to the Refined Coal Sale Agreement is to be deposited in the Control Account, which has been pledged to MLMC as security for the prompt and complete payment of the Invoice Amount. Pursuant to the Control Agreement, all the funds in the Control Account are swept on a daily basis to an MLMC account for satisfaction of any outstanding Invoice Amount.
KMRC and MLMC would like to provide for KMRC’s (a) initial purchase of Dedicated Lignite and; (b) daily nomination for the purchase of Dedicated Lignite and Alternative Fuel, which includes amounts to maintain an inventory of lignite for KMRC in the stockpile of run-of-mine Dedicated Lignite being maintained by MLMC (wherever located, including whether in the stockpile yards or silos or on conveyor belts and whether at the Mine or the Plant, the “Lignite Stockpile”). Due to likely fluctuations in inventory levels in KMRC’s inventory, monthly purchases of Dedicated Lignite and Alternative Fuel by KMRC under the Producer Coal Supply Agreement could differ from sales of Refined Coal and Backup Fuel to CGLP under the Refined Coal Sale Agreement in any given month. Thus it is anticipated that in some months the amounts paid by CGLP into the Control Account may be greater or less than the Invoice Amount. Accordingly, MLMC and KMRC each wish to amend and modify the Producer Coal Supply Agreement to, among other things, (i) provide for the initial purchase of Dedicated Lignite and daily nomination for the purchase of Dedicated Lignite and Alternative Fuel, both as part of maintaining an inventory of lignite for KMRC, (ii) clarify the process by which orders for lignite will be made and accepted by MLMC and (iii) define a process to address potential differences between amounts paid into the Control Account by CGLP and the Invoice Amount for the same month. In furtherance of the foregoing, MLMC and KMRC, hereby agree as follows:
(a) On the date hereof, KMRC hereby purchases from MLMC 40,000 tons of Dedicated Lignite as its initial inventory of lignite in the Lignite Stockpile for the Billing Price attributable to the month including the date hereof. KMRC shall pay MLMC for this initial inventory of lignite in stockpile by wire transfer of immediately available funds within ten (10) days after the end of this month in accordance with Exhibit A . Delivery in stockpile shall occur, and title and risk of loss with respect to such initial inventory of lignite shall transfer, from MLMC to KMRC at 12:01 a.m. on the date hereof.


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(b) On and following the date hereof and during the Term, KMRC shall on a daily basis issue purchase orders to MLMC by e-mail to MLMC’s representative designated pursuant to paragraph (1) below, for the purchase of Refined Coal and Backup Fuel, which would include amounts, if necessary, to maintain KMRC’s desired levels of lignite inventory in stockpile (setting forth the number of tons of lignite to be purchased by KMRC for such day submitted). KMRC purchase orders shall be deemed accepted unless rejected in accordance with the following table:
KMRC PO Delivery Time
Unless MLMC Rejects by ___
PO Deemed Accepted at ___
12:00 AM to 9:59 AM
2:00 PM
10:00 AM
10:00 AM to 12:59 PM
5:00 PM
1:00 PM
1:00 PM to 11:59 PM
10:00 AM NEXT DAY
10:00 AM NEXT DAY


The form of purchase order agreed to by MLMC and KMRC is attached hereto as Exhibit B . MLMC’s obligation to sell and deliver Dedicated Lignite or Alternative Fuel will be governed by the terms of the Producer Coal Supply Agreement as modified by this letter agreement.

(c) At the time of the deemed acceptance of a purchase order, delivery of Refined Coal and Backup Fuel for the number of tons of lignite set forth therein from MLMC to KMRC shall be deemed to have occurred, and title to, and risk of loss of, any such tons of lignite purchased, including amounts in KMRC inventory, shall pass from MLMC to KMRC and KMRC will own, and have risk of loss with respect to, its pro rata individual share of the aggregate inventory of lignite in the Lignite Stockpile. Accordingly, for all purposes of the Producer Coal Supply Agreement, the term “Point of Delivery” shall mean and refer to, with respect to KMRC inventory, such point of delivery in the Lignite Stockpile and not the point directly above the Pay Scale located at the C5A and C5B conveyors, as applicable, located in the Plant and depicted on Exhibit A to the Producer Coal Supply Agreement.

(d) During the Term, unless (i) the purchase and delivery of lignite to KMRC has been suspended in accordance with the terms of the Producer Coal Supply Agreement and (ii) KMRC’s then existing lignite inventory in the Lignite Stockpile has been depleted, all lignite placed on the C5A or C5B conveyors for eventual delivery to the Plant will be deemed to be from KMRC’s lignite inventory in the Lignite Stockpile.

(e) Notwithstanding Section 5.01 of the Producer Coal Supply Agreement, from the date hereof and for the remainder of the Term, the quantity of lignite sold and delivered to KMRC by MLMC will be determined by the sum of the nominations in the purchase orders issued by KMRC and accepted by MLMC for any Month pursuant to paragraph (b) above (the "Monthly Nomination"); provided, however, that if the Monthly Nomination plus the amount of KMRC's pro rata share of the Lignite Stockpile on the first day of such Month is less than the total amount of lignite passed over the Pay Scale for that Month, KMRC will pay to MLMC an amount equal to the difference in tons multiplied by the applicable Billing Price (as reduced by the aggregate Credit Amount from prior Months, if any), payable in accordance with the provisions of paragraph (a) above.

(f) No lignite sold to KMRC and held as KMRC’s inventory in the Lignite Stockpile will be required to be segregated from MLMC’s inventory of lignite in the Lignite Stockpile. MLMC will promptly make appropriate accounting entries on its books and records to reflect KMRC’s pro rata ownership of the Lignite Stockpile and maintain such records to reflect KMRC’s pro rata share of the Lignite Stockpile, including any necessary adjustments due to a Lignite Stockpile Loss as finally determined in accordance with paragraph (i) below. At least monthly, or more often if reasonably requested by KMRC, MLMC will provide KMRC with a report summarizing KMRC’s inventory of lignite in the Lignite Stockpile, computed as follows: the amount of KMRC’s initial lignite inventory in the Lignite Stockpile if no prior report has been provided or the amount KMRC’s inventory of lignite in the Lignite Stockpile from the last report (i) increased by the amount of lignite in the Lignite Stockpile purchased under the Producer Coal Supply Agreement in accordance with paragraph (b) above during the applicable period; (ii) decreased by the amount of lignite delivered from the Lignite Stockpile to the Facility during the applicable period, as measured by quantities of lignite passing over the Pay Scale; and (iii) decreased to reflect any Lignite Stockpile Loss during the applicable period (or in the period of determination if the Lignite Stockpile Loss is not finally determined in the applicable period). If KMRC disagrees with any part of such calculation of KMRC’s inventory of lignite (other than the determination of any Lignite Stockpile Loss, the resolution of which is subject to paragraph (i) below), it will provide notice thereof to MLMC and thereafter KMRC and MLMC shall consider the issues raised or in dispute and discuss such issues with each other and attempt to reach a mutually satisfactory agreement.


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(g) MLMC shall maintain KMRC’s portion of the Lignite Stockpile, in accordance with Good Industry Practices. For purposes of this letter agreement, “ Good Industry Practices ” means utilizing the same practices and standards of safety, reliability, environmental protection and economy as MLMC utilizes in the maintenance of its own inventory of lignite; provided, however, that Good Industry Practices does not include any obligation by MLMC to obtain or provide any insurance with respect to lignite representing KMRC’s prorated share of the Lignite Stockpile. As compensation for the services rendered by MLMC under this letter agreement, KMRC shall pay MLMC a monthly fee equal to $6,000, payable in arrears on the 5 th day of the following month. This fee shall be payable in accordance with the provisions of paragraph (a) above and shall be adjusted annually in accordance with the annual change in the Consumer Price Index-All Urban Consumers (CPI-U), Series ID: CUUR00005A0, as published by the United States Bureau of Labor Statistics.

(h) If, notwithstanding MLMC’s compliance with Good Industry Practices, there is a loss of lignite from the Lignite Stockpile, whether by natural attrition ( e.g. , wind), natural disaster ( e.g. , tornado), catastrophic incident ( e.g. , fire) or of unknown origin but evidenced by a stockpile survey or other methods generally accepted in the industry and recognized as a charge against inventory in MLMC’s accounting records (each a “ Lignite Stockpile Loss ”), KMRC will suffer a loss of its lignite inventory in proportion to the total amount of lignite lost as compared to the entire amount of lignite in the Lignite Stockpile ( e.g. , if 20% of the entire Lignite Stockpile is determined to have been lost, 20% of KMRC’s lignite inventory will be deemed to have been lost), as finally determined in accordance with paragraph (i) below. In the event it is determined that a loss of lignite from the Lignite Stockpile has occurred over time, KMRC’s proportion of such loss will be determined by calculating KMRC’s average daily percentage ownership of the Lignite Stockpile over such period of time. MLMC will promptly provide notice to KMRC of any Lignite Stockpile Loss after learning of such loss and keep KMRC reasonably informed of its determination of the amount of such loss and KMRC’s pro rata portion thereof. Promptly following MLMC’s determination of a Lignite Stockpile Loss, it shall provide notice to KMRC of its calculation thereof, KMRC’s pro rata portion thereof and a description of its calculations and the manner of its determinations thereof (a “ MLMC Lignite Stockpile Loss Notice ”). MLMC shall promptly provide any information related thereto reasonably requested by KMRC. KMRC shall have 10 Business Days to review any MLMC Lignite Stockpile Loss Notice, and if KMRC does not provide notice of its objection thereto within such 10 Business Day period (with such period extended for the number of days between KMRC’s request for any information and KMRC’s receipt of such information from MLMC), MLMC’s calculation of the Lignite Stockpile Loss and KMRC’s pro rata portion thereof will be deemed final and binding on the parties.
  
(i) If KMRC provides notice to MLMC of its objection to a MLMC Lignite Stockpile Loss Notice (a “ KMRC Lignite Loss Objection ”), then KMRC and MLMC shall consider the issues raised or in dispute and discuss such issues with each other and attempt to reach a mutually satisfactory agreement. If the dispute as to MLMC’s calculations is not resolved within 30 days following KMRC’s delivery of its KMRC Lignite Loss Objection (the “ Resolution Deadline ”), such dispute will be submitted to and resolved by an independent, nationally recognized engineering firm having expertise in stockpile surveys and agreed upon by the parties. If KMRC and MLMC cannot mutually agree to such an engineering firm within the 30 days following the Resolution Deadline, each shall select a representative from an engineering firm of their choice and these representatives will select a third, independent, nationally recognized engineering firm having expertise in stockpile surveys (such firm either as selected by the agreement of KMRC and MLMC or such third engineering firm selected by representatives of firms selected by each of KMRC and MLMC, the “ Engineering Firm ”). The Engineering Firm shall resolve the dispute promptly, but in no event more than 30 days after having the dispute submitted to it, unless the Engineering Firm provides notice to KMRC and MLMC, in writing, that in its reasonable opinion resolution of the disputed issue or issues shall require additional time. The Engineering Firm will make a determination as to each of the items in dispute, which determination must be (i) in writing and (ii) furnished to each of KMRC and MLMC and which determination will be conclusive and binding on KMRC and MLMC, absent manifest error. Each of the parties shall use reasonable efforts to cause the Engineering Firm to render its decision as soon as reasonably practicable, including by promptly complying with all reasonable requests by the Engineering Firm for information, books, records and similar items. The cost of the Engineering Firm shall be borne equally by the parties.

(j) In the event that the amount to be deposited by CGLP into the Control Account for a billing period is less than the Invoice Amount (as reduced by any applicable outstanding and unapplied credits from prior billing periods) for that same billing period, KMRC will cause an amount equal to such deficiency to be deposited into the Control Account (or such other account as directed by MLMC) by wire transfer of funds prior to the applicable Payment Date. In the event that the amount to be deposited by CGLP into the Control Account for a billing period is more than the Invoice Amount (as reduced by any applicable outstanding and unapplied credits from prior billing periods) for the same billing period, MLMC will still be permitted to sweep the entire amount of the funds in the

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Control Account to MLMC’s account pursuant to the Control Agreement and such excess amount will be applied as a credit against any future Invoice Amounts; provided that, if the aggregate of such outstanding and unapplied excess amounts being held by MLMC exceeds $150,000.00, or if upon termination of the Producer Coal Supply Agreement any such excess amount remains outstanding and unapplied to outstanding Invoice Amounts, MLMC will promptly pay, by wire transfer to an account designated by KMRC, an amount equal to such outstanding excess amount.

(k) Notwithstanding Section 8.02(d) of the Producer Coal Supply Agreement, for the last billing period under the Refined Coal Sale Agreement and the Producer Coal Supply Agreement, KMRC shall instruct CGLP to pay an amount equal to the Invoice Amount for that period to be paid to the Control Account but may instruct any additional amounts owed by CGLP to KMRC to be paid to a different account of KMRC’s (it being anticipated that in the last billing period sales of Refined Coal and Backup Fuel to CGLP will exceed purchases of lignite hereunder from MLMC due to the anticipated depletion of KMRC’s lignite inventory in the last billing period).

(l) All notices and other communication hereunder are to be in writing and will be deemed given when delivered in accordance with the terms of Article 14 of the Producer Coal Supply Agreement, other than notices for purchase orders to MLMC by KMRC, which shall be made by e-mail to the representative(s) designated by MLMC, such initial representative being Cheryl McIntire, with the e-mail address of cheryl.mcintire@nacoal.com. MLMC shall at all times during the Term have at least one representative for accepting purchase orders from KMRC and may change such representative by notice to KMRC in accordance with the terms of Article 14 of the Producer Coal Supply Agreement.

(m) Except as otherwise provided in paragraph (i) above, any disputes arising under this letter agreement will be resolved in accordance with Articles 15 and 16 of the Producer Coal Supply Agreement.

(n) This letter agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns; provided, however, this letter agreement may not be assigned by either MLMC or KMRC without the written consent of the other party, which consent will not be unreasonably withheld.

(o) The parties hereto acknowledge and agree that the parties hereto would be irreparably damaged if any of the provisions of this letter agreement are not performed in accordance with their specific terms or are otherwise breached and that any non-performance or breach of this letter agreement by any party hereto could not be adequately compensated by monetary damages alone and that the parties hereto would not have any adequate remedy at law. Accordingly, in addition to any other right or remedy to which any party hereto may be entitled, at law or in equity (including monetary damages), such party shall be entitled to enforce any provision of this letter agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this letter agreement without posting any bond or other undertaking.

(p) This letter agreement may be simultaneously executed in any number of counterparts, and all such counterparts shall constitute but one and the same instrument.

(q) This letter agreement shall be governed by and construed according to the laws of the State of Texas without giving effect to the conflict of laws principles thereof.

(r) No amendment, modification or discharge of this letter agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. Neither the waiver by any party hereto of a breach or of a default under any provisions of this letter agreement, nor the failure by any party on one or more occasions to enforce any of the provisions of this letter agreement or to exercise any right or privilege hereunder, shall be construed as a waiver of any other breach or default of a similar nature, or as a waiver of any of such provisions, rights or privileges hereunder. The execution or delivery of this letter agreement by a party shall not by itself constitute a waiver of any provision of this letter agreement or any breach of this letter agreement arising out of facts or circumstances existing at the time of such execution or delivery.

(s) MLMC makes the following representations and warranties:
(i)
MLMC is a joint venture between NAC and RHPC, duly organized under the laws of the State of Texas and authorized to do business in Mississippi. NAC is a Delaware corporation, and RHPC is a Mississippi limited liability company. Each of MLMC, NAC

4




and RHPC has full power and authority to carry on its business as presently conducted and to execute and deliver this letter agreement and perform its obligations under this letter agreement. MLMC is duly qualified to do business and is in good standing in each jurisdiction, including the State of Mississippi, in which MLMC is required to qualify to do business as the joint venture that is MLMC.

(ii)
The execution, delivery and performance by MLMC of this letter agreement have been duly authorized by all necessary action on the part of MLMC, and neither the execution, delivery, nor the performance of this letter agreement by MLMC nor the fulfillment of the terms, provisions and conditions of this letter agreement by MLMC (A) requires any approval of consent of any trustees or holders of any indebtedness or obligations of MLMC, (B) contravenes any law or any governmental rule, regulation, or order binding on MLMC, (C) violates the Joint Venture Agreement of MLMC or requires any additional approval or consent of the joint venturers, NAC and RHPC, or (D) contravenes the provisions of, or constitutes an event of default (or other event which after lapse of time, notice or both would constitute an event of default) under any indenture, deed of trust, contract, or other agreement to which MLMC is a party or by which MLMC is affected or bound.

(iii)
This letter agreement has been duly executed and delivered by MLMC and constitutes a legal, valid and binding agreement of MLMC enforceable against MLMC in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(iv)
The Producer Coal Supply Agreement continues to be a legal, valid and binding obligation of MLMC, enforceable against MLMC in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). MLMC is not in default and knows of no event which with the giving of notice or the passage of time would constitute an event of default under the Producer Coal Supply Agreement.

(t) KMRC makes the following representations and warranties:

(i)
KMRC is a limited liability company duly organized and validly existing in good standing under the laws of the State of Delaware and has full power and authority to carry on its business as presently conducted and to execute and delivery this letter agreement and perform its obligations under this letter agreement. KMRC is duly qualified to do business and is in good standing in each jurisdiction, including the State of Mississippi, in which KMRC is required to qualify to do business as a foreign limited liability company.

(ii)
The execution, delivery and performance by KMRC of this letter agreement have been duly authorized by all necessary limited liability company action on the part of KMRC and neither the execution, delivery or the performance of this letter agreement by KMRC, nor the fulfillment of the terms, provisions and conditions of this letter agreement by KMRC (A) requires any approval or consent of any trustee or holders of any indebtedness or obligations of KMRC, (B) contravenes any law or any governmental rule, regulation, or order binding on KMRC, (C) violates the limited liability company agreement of KMRC or (D) contravenes the provisions of, or constitutes an event of default (or other event which after lapse of time, notice or both would constitute an event of default) under any indenture, deed of trust, contract, or other agreement to which KMRC is a party or by which KMRC is affected or bound.

(iii)
This letter agreement has been duly executed and delivered by KMRC and constitutes a legal, valid and binding agreement of KMRC, enforceable against KMRC in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

5




(iv)
The Producer Coal Supply Agreement continues to be a legal, valid and binding obligation of KMRC, enforceable against KMRC in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium and similar laws, as well as to general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law). KMRC is not in default and knows of no event which with the giving of notice or the passage of time would constitute an event of default under the Producer Coal Supply Agreement.

(u) During the Term and upon completion of the installation and initial calibration of the Boiler Belt Feeder Scale (as defined in the Refined Coal Sale Agreement):

(i)
KMRC will, within twenty-four (24) hours of receipt, provide to MLMC copies of the electronic records delivered by CGLP to KMRC pursuant to Section 2.14 of the Refined Coal Sale Agreement, which set forth the daily quantities of Refined Coal and Backup Fuel delivered by KMRC to CGLP as measured by the Boiler Belt Feeder Scale;

(ii)
KMRC will, upon three (3) days' notice from MLMC, (A) inspect and observe the operation of the Boiler Belt Feeder Scale, and (B) inspect, copy and audit CGLP's records related to the Boiler Belt Feeder Scale;

(iii)
KMRC will request that CGLP permit MLMC to participate in any inspection of the Boiler Belt Feeder Scale and audit of CGLP's records related to the Boiler Belt Feeder Scale; provided, that if such request is denied by CGLP, KMRC will provide to MLMC (A) a summary of its findings regarding the accuracy of the Boiler Belt Feeder Scale, and (B) copies of CGLP's records; and

(iv)
if the Boiler Belt Feeder Scale is determined by MLMC to be outside of the manufacturer's allowable tolerance for the base quantity being measured, KMRC will use commercially reasonable efforts to engage, or to cause CGLP to engage, a third party to calibrate the Boiler Belt Feeder Scale.

(v) After June 30, 2015, MLMC can terminate this letter agreement upon thirty (30) days’ notice to KMRC if the Producer Coal Supply Agreement and Refined Coal Sale Agreement have not been amended, in a manner reasonably satisfactory to MLMC, to state that the parties thereto will use the Pay Scale as the sole scale for purposes of measuring quantities of Dedicated Lignite, Refined Coal and Backup Fuel delivered by MLMC and KMRC, as applicable. In the event of a termination by MLMC under this subsection, the parties will negotiate in good faith as to how best to effectuate the termination. Upon termination, KMRC will draw down, in due course, KMRC's remaining inventory in the stockpile of run-of-mine Dedicated Lignite at no additional cost to KMRC due to KMRC’s prepayment therefor. Once this remaining inventory in the stockpile has been depleted, deliveries of Dedicated Lignite from MLMC to KMRC will resume pursuant to the terms of the Producer Coal Supply Agreement as in effect immediately prior to the effectiveness of this letter agreement.

6






Sincerely,

KMRC RH, LLC

By:
/s/ Daniel J. Murray
 
Daniel J. Murray
 
President
    



Accepted and Agreed
as of January 1, 2015
Mississippi Lignite Mining Company
By Its Joint Venturers:
The North American Coal Corporation
By:
/s/ John D. Neumann
Name:
John D. Neumann
Title:
President
    
Red Hills Property Company LLC
By:
/s/ J. Patrick Sullivan, Jr.
Name:
J. Patrick Sullivan, Jr.
Title:
Manager
    

Cc:    The North American Coal Corporation
5340 Legacy Drive
Building 1, Suite 300
Plano, TX 75024
Attention: John Neumann, General Counsel







7



Exhibit 10.54

AMENDMENT NO. 4
TO THE NORTH AMERICAN COAL CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
( As Amended and Restated as of January 1, 2008 )

The North American Coal Corporation hereby adopts this Amendment No. 4 to The North American Coal Corporation Supplemental Retirement Benefit Plan (As Amended and Restated as of January 1, 2008) (the "Plan"), to be effective immediately following the close of business on December 1, 2014. Words used herein with initial capital letters which are defined in the Plan are used herein as so defined.

Section 1

Section 3.5 is hereby amended by adding the following new Subsection (4) to the end thereof, to read as follows:

“(4) Notwithstanding the foregoing, or any other provision of the Plan to the contrary, The North American Coal Corporation shall be solely responsible for the payment of the Supplemental Retirement Benefits payable to the Participants who were employed by, or allocated to, (i) The Coteau Properties Company or (ii) Bellaire Corporation on December 1, 2014 (or, if earlier on the date of their Termination of Employment with the Controlled Group).”


Section 2

Exhibit A to the Plan is hereby amended in its entirety to read as shown in the attachment to this Amendment. [Exhibit Intentionally Omitted]


EXECUTED this 12th day of November, 2014.


THE NORTH AMERICAN COAL CORPORATION

    
                            
 
/s/ Mary D. Maloney
 
Mary D. Maloney
 
Associate General Counsel, Senior Director Benefits & Human Resources and Assistant Secretary






Exhibit 10.66

AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT Agreement, dated November 20, 2014 (this “Amendment No. 2”), is by and among Wells Fargo Bank, National Association, in its capacity as agent pursuant to the Credit Agreement (as hereinafter defined) acting for and on behalf of the parties thereto as lenders (in such capacity, “Agent”), the parties to the Credit Agreement as lenders (individually, each a “Lender” and collectively, “Lenders”), Hamilton Beach Brands, Inc., formerly known as Hamilton Beach/Proctor-Silex Inc., a Delaware corporation (“Parent” or “US Borrower”) and Hamilton Beach Brands Canada, Inc., formerly known as Proctor-Silex Canada Inc., an Ontario corporation (“Hamilton Brands Canada” or “Canadian Borrower”, and together with US Borrower, each individually a “Borrower” and collectively, “Borrowers”).
W I T N E S S E T H :
WHEREAS, Agent, Lenders and Borrowers have entered into financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) have made and may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Amended and Restated Credit Agreement, dated as of May 31, 2012, by and among Agent, Lenders and Borrowers, as amended by Amendment No. 1 to Amended and Restated Credit Agreement, dated July 29, 2014 (as the same now exists and is amended and supplemented pursuant hereto and may hereafter be further amended, modified, supplemented, extended, renewed, restated or replaced, the “Credit Agreement”) and the other Loan Documents;
WHEREAS, Borrowers desire to amend certain provisions of the Credit Agreement as set forth herein, and Agent and Lenders are willing to agree to such amendments on the terms and subject to the conditions set forth herein;
WHEREAS, by this Amendment No. 2, Agent, Lenders and Borrowers desire and intend to evidence such amendments;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions .

(a) Additional Definition . As used herein or in the Credit Agreement or any of the other Loan Documents, the term “Amendment No. 2” shall mean Amendment No. 2 to Amended and Restated Credit Agreement, dated November 20, 2014, by and among Agent, Lenders and Borrowers, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced, and the Credit Agreement and the other Loan Documents shall be deemed and are hereby amended to include, in addition and not in limitation, such definition.

(b) Amendments to Definitions .
(i) The definition of “Bank Product Reserves” set forth in the Credit Agreement is hereby amended by adding the following at the end thereof immediately before the period:

“; provided , that , no Bank Product Reserves shall be established in respect of Cash Management Services consisting of supply chain financing arrangements”.
(ii) The definition of “Cash Management Services” set forth in the Credit Agreement is hereby amended by deleting the parenthetical at the end of the definition and replacing it with the following:

“(including supply chain financing arrangements)”.
(c) Interpretation . For purposes of this Amendment No. 2, all terms used herein which are not otherwise defined herein, including but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Credit Agreement as amended by this Amendment No. 2.


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2. Apportionment and Application .

(a) Section 2.4(b)(ii)(J) of the Credit Agreement is hereby amended by deleting clause (4) thereof in its entirety and replacing it with the following:

“(4) Ratably, up to the amount (after taking into account any amounts previously paid pursuant to this clause (3), during the continuation of the applicable Application Event) of the most recently established Bank Product Reserve to (y) the Bank Product Providers based upon amounts then certified by the applicable Bank Product Provider to Agent (in form and substance satisfactory to Agent) to be due and payable to such Bank Product Providers on account of Bank Product Obligations (other than Bank Product Obligations consisting of supply chain financing arrangements), and (z) with any balance to be paid to Agent, to be held by Agent, for the ratable benefit of the Bank Product Providers, as cash collateral (which cash collateral may be released by Agent to the applicable Bank Product Provider and applied by such Bank Product Provider to the payment or reimbursement of any amounts due and payable with respect to Bank Product Obligations (other than Bank Product Obligations consisting of supply chain financing arrangements) owed to the applicable Bank Product Provider as and when such amounts first become due and payable and, if and at such time as all such Bank Product Obligations are paid or otherwise satisfied in full, the cash collateral held by Agent in respect of such Bank Product Obligations shall be reapplied pursuant to this Section 2.4(b)(ii) , beginning with tier (A) hereof,”
(b) Section 2.4(b)(ii) of the Credit Agreement is hereby amended by deleting clause (K) thereof in its entirety and replacing it with the following:

“(K) eleventh , to pay any other Obligations (including Bank Product Obligations consisting of supply chain financing arrangements),”.
3. Representations and Warranties . Borrowers, jointly and severally, represent and warrant with and to Agent and Lenders as follows, which representations and warranties shall survive the execution and delivery hereof, the truth and accuracy of, or compliance with each, together with the representations, warranties and covenants in the other Loan Documents, being a continuing condition of the making of Loans and providing Letters of Credit to Borrowers:

(a) no Default or Event of Default exists or has occurred and is continuing as of the date of this Amendment No. 2;

(b) this Amendment No. 2 and each other agreement to be executed and delivered by Borrowers in connection herewith (together with this Amendment No. 2, the “Amendment Documents”) has been duly authorized, executed and delivered by all necessary corporate or organizational action on the part of each Borrower which is a party and is in full force and effect as of the date hereof, as the case may be, and the agreements and obligations of each of the Borrowers, as the case may be, contained herein and therein constitute legal, valid and binding obligations of each of the Borrowers, enforceable against them in accordance with their terms, except as enforceability is limited by equitable principals or by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights generally;

(c) the execution, delivery and performance of this Amendment No. 2 and the other Amendment Documents (i) are all within each Borrower’s corporate powers and (ii) are not in contravention of law or the terms of any Borrower’s certificate of incorporation, bylaws, or other organizational documentation, or any material indenture, agreement or undertaking to which any Borrower is a party or by which any Borrower or its property are bound which such contravention could individually or in the aggregate reasonably be expected to have a Material Adverse Effect; and

(d) all of the representations and warranties set forth in the Credit Agreement and the other Loan Documents, each as amended hereby, are true and correct in all material respects on and as of the date hereof, as if made on the date hereof, except to the extent any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date.

4. Conditions Precedent . The amendments contained herein shall only be effective upon the satisfaction of each of the following conditions precedent in a manner reasonably satisfactory to Agent:

(a) Agent shall have received counterparts of this Amendment No. 2, duly authorized, executed and delivered by Borrowers;

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(b) Agent shall have received the consent or authorization from such Lenders as are required for the amendments provided for herein to execute this Amendment No. 2 on behalf of the Lenders;

(c) Agent shall have received a true and correct copy of each consent, waiver or approval (if any) to or of this Amendment No. 2, which any Borrower is required to obtain from any other Person, and such consent, approval or waiver (if any) shall be in form and substance reasonably satisfactory to Agent; and

(d) No Default or Event of Default shall exist or have occurred and be continuing.

5. Effect of this Amendment . Except as expressly set forth herein, no other amendments, changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the effective date hereof and Borrowers shall not be entitled to any other or further amendment by virtue of the provisions of this Amendment No. 2 or with respect to the subject matter of this Amendment No. 2. To the extent of conflict between the terms of this Amendment No. 2 and the other Loan Documents, the terms of this Amendment No. 2 shall control. The Credit Agreement and this Amendment No. 2 shall be read and construed as one agreement.

6. Governing Law . The validity, interpretation and enforcement of this Amendment No. 2 and any dispute arising out of the relationship between the parties hereto whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the State of New York but excluding any principles of conflicts of law or other rule of law that would cause the application of the law of any jurisdiction other than the laws of the State of New York.

7. Binding Effect . This Amendment No. 2 shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

8. Further Assurances . Borrowers shall execute and deliver such additional documents and take such additional action as may be reasonably requested by Agent to effectuate the provisions and purposes of this Amendment No. 2.

9. Entire Agreement . This Amendment No. 2 represents the entire agreement and understanding concerning the subject matter hereof among the parties hereto, and supersedes all other prior agreements, understandings, negotiations and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written.

10. Headings . The headings listed herein are for convenience only and do not constitute matters to be construed in interpreting this Amendment No. 2.

11. Counterparts . This Amendment No. 2 may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment No. 2 by telefacsimile or other electronic method of transmission shall have the same force and effect as delivery of an original executed counterpart of this Amendment No. 2. Any party delivering an executed counterpart of this Amendment No. 2 by telefacsimile or other electronic method of transmission shall also deliver an original executed counterpart of this Amendment No. 2, but the failure to do so shall not affect the validity, enforceability, and binding effect of this Amendment No. 2.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to be duly executed and delivered by their authorized officers as of the day and year first above written.
 
US BORROWER
HAMILTON BEACH BRANDS, INC.








 
 /s/ James H. Taylor
 
James H. Taylor
 
Vice President and Chief Financial Officer
 
 
 
CANADIAN BORROWER

HAMILTON BEACH BRANDS CANADA, INC.

 
 /s/ James H. Taylor
 
James H. Taylor
 
Vice President and Chief Financial Officer
AGENT AND LENDERS
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Agent and a Lender
/s/ Sang Kim
Sang Kim
Authorized Signatory
                    
WELLS FARGO CAPITAL FINANCE
CORPORATION CANADA, as a Lender
/s/ Carmella Massari
Carmella Massari
Senior Vice President
    
    
BANK OF AMERICA, N.A., as a Lender
/s/ Kenneth B. Butler
Kenneth B. Butler
Senior Vice President

KEYBANK, NATIONAL ASSOCIATION, as a Lender
/s/ Nadine M. Eames
Nadine M. Eames
Vice President


4



Exhibit 10.71

HAMILTON BEACH BRANDS, INC.
EXCESS RETIREMENT PLAN
(As Amended and Restated Effective January 1, 2015)
Hamilton Beach Brands, Inc. (the “Company”) does hereby adopt this amendment and restatement of the Hamilton Beach Brands, Inc. Excess Retirement Plan to read as follows:
ARTICLE I
PREFACE

SECTION 1.1 Effective Date . The effective date of this amendment and restatement of the Plan is January 1, 2015.

SECTION 1.2 Purpose of the Plan . The purpose of this Plan is to provide for certain Employees the benefits they would have received under the Savings Plan but for (i) the limitations imposed under Sections 401(a)(17) and 415 of the Code or (ii) the limitations on Profit Sharing Contributions that apply to Highly Compensated Employees.

SECTION 1.3 Governing Law . This Plan shall be regulated, construed and administered under the laws of the Commonwealth of Virginia , except when preempted by federal law.

SECTION 1.4 Gender and Number . For purposes of interpreting the provisions of this Plan, the masculine gender shall be deemed to include the feminine, the feminine gender shall be deemed to include the masculine, and the singular shall include the plural unless otherwise clearly required by the context.

SECTION 1.5 Code Section 409A . The Plan is intended to be exempt from the requirements of Section 409A of the Code and applicable Treasury Regulations issued thereunder and shall be interpreted and administered in a manner to give effect to such intent. Notwithstanding the foregoing, the Employers do not guarantee to Participants or Beneficiaries any particular tax result with respect to any amounts deferred or any payments provided hereunder, including tax treatment under Code Section 409A.

ARTICLE II
DEFINITIONS

Except as otherwise provided in this Plan, terms defined in the Savings Plan as it may be amended from time to time shall have the same meanings when used herein, unless a different meaning is clearly required by the context of this Plan. In addition, the following words and phrases shall have the following respective meanings for purposes of this Plan.
SECTION 2.1 Account shall mean the record maintained by the Employer in accordance with Section 3.3 as the sum of the Participant’s Excess Retirement Benefits hereunder.

SECTION 2.2 Beneficiary shall mean the person or persons designated by the Participant as his Beneficiary under this Plan, in accordance with the provisions of Article VII hereof.

SECTION 2.3 Company shall mean Hamilton Beach Brands, Inc.

SECTION 2.4 Compensation . The term “Compensation” shall have the same meaning as under the Savings Plan, except that Compensation shall be deemed to include amounts in excess of the limitation imposed by Code Section 401(a)(17).

SECTION 2.5 Compensation Committee shall mean the Compensation Committee of the Board of Directors of the Company or an authorized sub-committee thereof.

SECTION 2.6 Employer Added Employee shall mean a participant in the Savings Plan who is eligible for Retirement Contributions.

SECTION 2.7 Excess Retirement Benefit or Benefit shall mean an Excess Profit Sharing Benefit or an Excess Employer Added Benefit (as described in Article III) which is payable to or with respect to a Participant under this Plan.

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SECTION 2.8 Fixed Income Fund shall mean the Vanguard Retirement Savings Trust IV under the Savings Plan or any equivalent fixed income fund thereunder which is designated by the NACCO Industries, Inc. Retirement Funds Investment Committee as the successor to such fund

SECTION2.9 Participant .

(a) For purposes of Section 3.1 of the Plan, the term “Participant” shall mean a Profit Sharing Employee whose Post-1996 Profit Sharing Contributions for a Plan Year are limited by (i) the application of Section 401(a)(17) or 415 of the Code or (ii) are reduced as a result of the limits that apply to Highly Compensated Employees under the terms of the Savings Plan.
(b) For purposes of Section 3.2 of the Plan, the term “Participant” shall mean an Employer Added Employee whose Retirement Contributions for a Plan Year are limited by the application of Section 401(a)(17) or 415 of the Code.

SECTION 2.10 Plan shall mean the Hamilton Beach Brands, Inc. Excess Retirement Plan as herein set forth or as duly amended.

SECTION 2.11 Plan Administrator shall mean the Administrative Committee appointed under the Savings Plan.

SECTION 2.12 Plan Year shall mean the calendar year.

SECTION 2.13 Profit Sharing Employee shall mean a participant in the Savings Plan who is eligible for Post-1996 Profit Sharing Contributions.

SECTION 2.14 Savings Plan shall mean the Hamilton Beach Brands, Inc. Employees’ Retirement Savings Plan (401(k)), as the same may be amended from time to time, or any successor thereto.

SECTION 2.15 Valuation Date shall mean the last business day of each calendar month and any other date chosen by the Plan Administrator.

ARTICLE III
EXCESS RETIREMENT BENEFITS

SECTION 3.1 Excess Profit Sharing Benefits . Each Employer shall credit to a Sub-Account (the “Excess Profit Sharing Sub-Account”) established for each Participant who is an Employee of such Employer and a Profit Sharing Employee, an amount equal to the excess , if any, of (a) the amount of the Employer’s Post-1996 Profit Sharing Contribution that would have been made to the profit sharing portion of the Savings Plan on behalf of the Participant if such Plan did not contain (i) the limitations imposed under Sections 401(a)(17) and 415 of the Code and (ii) the limitations applicable to Highly Compensated Employees, over (b) the amount of the Employer’s Post-1996 Profit Sharing Contribution that is actually made to the Savings Plan on behalf of the Participant for such Plan Year (the “Excess Profit Sharing Benefits”).

SECTION 3.2 Employer Added Benefits . Each Employer shall credit to a Sub-Account (the “Excess Employer Added Sub-Account”) established for each Participant who is an Employee of such Employer and an Employer Added Employee, an amount equal to the excess, if any, of (i) the amount of the Employer’s Retirement Contributions that would have been made to the profit sharing portion of the Savings Plan on behalf of the Participant if such Plan did not contain the limitations imposed under Sections 401(a)(17) and 415 of the Code, over (ii) the amount of the Employer’s Retirement Contribution that is actually made to the Savings Plan on behalf of the Participant for such Plan Year (the “Excess Employer Added Benefits”).

SECTION 3.3 Participant’s Account . Each Employer shall establish and maintain on its books an Account for each Participant who is an Employee of such Employer which shall contain the following entries:

(a) Credits to an Excess Profit Sharing Sub-Account for the Excess Profit Sharing Benefits described in Section 3.1, which shall be credited to the Sub-Account at the time the Profit Sharing Contributions are otherwise credited to Participants’ Accounts under the Savings Plan;


2




(b) Credits to an Excess Employer Added Sub-Account for the Excess Employer Added Benefits described in Section 3.2, which shall be credited to the Sub-Account when an Employer Added Employee is prevented from receiving Retirement Contributions under the Savings Plan;

(c) Credits to all such Sub-Accounts for the interest and the uplift described in Article IV; and

(d) Debits for any distributions made from such Sub-Accounts.

ARTICLE IV
INTEREST AND UPLIFT

SECTION 4.1 Amount of Interest . Subject to Section 4.3, at the end of each calendar month, the Excess Employer Added Sub-Account of each Participant shall be credited with an amount determined by multiplying such Participant’s average Sub-Account balance during such month by the blended rate earned during such month by the Fixed Income Fund. Notwithstanding the foregoing, such interest credits shall cease as of the last day of the month prior to the date of the payment of such Sub-Account

SECTION 4.2 Uplift . In addition to the interest described in Section 4.1, the balance in each Participant’s Sub-Accounts as of the last day of the month prior to the payment date (including any interest credits for such month) shall be increased by an additional 15%.

SECTION 4.3 Changes/Limitations .

(a) At any time, the Company (without the consent of any Employer but with the approval or ratification of the Compensation Committee) may change or suspend (i) the interest rate credited to Sub-Accounts hereunder and/or (ii) the amount of the uplift credited to Sub-Accounts hereunder.

(b) Notwithstanding any provision of the Plan to the contrary, in no event will interest on Accounts for a Plan Year under Section 4.1 be credited at a rate which exceeds 14%.

ARTICLE V
VESTING

SECTION 5.1 Vesting . A Participant shall always be 100% vested in all amounts credited to his Account hereunder.

ARTICLE VI
DISTRIBUTION OF BENEFITS

SECTION 6.1 Time and Form of Payment . All amounts credited to a Participant’s Sub-Accounts for each Plan Year (including the Excess Profit Sharing Benefits, the interest and the uplift for such Plan Year that are credited after the end of such Plan Year) shall automatically be paid to the Participant (or his Beneficiary in the event of his death) in the form of a single lump sum payment on March 15th of the immediately following Plan Year.

ARTICLE VII
BENEFICIARY DESIGNATIONS

SECTION 7.1 Beneficiary Designations . A designation of a Beneficiary hereunder may be made only by an instrument (in form acceptable to the Plan Administrator) signed by the Participant and filed with the Plan Administrator prior to the Participant’s death. A Participant must designate a single Beneficiary (or set of Beneficiaries) for all collective Sub-Accounts hereunder. In the absence of such a designation and at any other time when there is no existing Beneficiary designated hereunder, the Beneficiary of a Participant for his Account shall be his Beneficiary under the Savings Plan. A person designated by a Participant as his Beneficiary who or which ceases to exist shall not be entitled to any part of any payment thereafter to be made to the Participant’s Beneficiary unless the Participant’s designation specifically provided to the contrary. If two or more persons designated as a Participant’s Beneficiary are in existence with respect to a single Excess Retirement Benefit the amount of any payment to the Beneficiary under this Plan shall be divided equally among such persons unless the Participant’s designation specifically provides for a different allocation.


3




SECTION 7.2 Change in Beneficiary . A Participant may, at any time and from time to time, change a Beneficiary designation hereunder without the consent of any existing Beneficiary or any other person. Any change in Beneficiary shall be made by giving written notice thereof to the Plan Administrator and any change shall be effective only if received by the Plan Administrator prior to the death of the Participant.

ARTICLE VIII
MISCELLANEOUS

SECTION 8.1 Liability of Employers . Nothing in this Plan shall constitute the creation of a trust or other fiduciary relationship between any Employer and any Participant, Beneficiary or any other person.

SECTION 8.2 Limitation on Rights of Participants and Beneficiaries ‑ No Lien . The Plan is designed to be an unfunded, nonqualified plan. Nothing contained herein shall be deemed to create a trust or lien in favor of any Participant or Beneficiary on any assets of an Employer. The Employers shall have no obligation to purchase any assets that do not remain subject to the claims of the creditors of the Employers for use in connection with the Plan. No Participant or Beneficiary or any other person shall have any preferred claim on, or any beneficial ownership interest in, any assets of an Employer prior to the time that such assets are paid to the Participant or Beneficiary as provided herein. Each Participant and Beneficiary shall have the status of a general unsecured creditor of his Employer.

SECTION 8.3 No Guarantee of Employment . Nothing in this Plan shall be construed as guaranteeing future employment to Participants. A Participant continues to be an Employee of an Employer solely at the will of such Employer subject to discharge at any time, with or without cause.

SECTION 8.4 Payment to Guardian . If a Benefit payable hereunder is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his property, the Plan Administrator may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Plan Administrator may require such proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Employers from all liability with respect to such Benefit.

SECTION 8.5 Assignment . No right or interest under this Plan of any Participant or Beneficiary shall be assignable or transferable in any manner or be subject to alienation, anticipation, sale, pledge, encumbrance or other legal process or in any manner be liable for or subject to the debts or liabilities of the Participant or Beneficiary. Notwithstanding the foregoing, the Plan Administrator shall honor a judgment, order or decree from a state domestic relations court which requires the payment of part or all or a Participant’s or Beneficiary’s interest under this Plan to an “alternate payee” as defined in Code Section 414(p).

SECTION 8.6 Severability . If any provision of this Plan or the application thereof to any circumstance(s) or person(s) is held to be invalid by a court of competent jurisdiction, the remainder of the Plan and the application of such provision to other circumstances or persons shall not be affected thereby.

SECTION 8.7 Effect on other Benefits . Benefits payable to or with respect to a Participant under the Savings Plan or any other Employer-sponsored (qualified or nonqualified) plan, if any, are in addition to those provided under this Plan.

SECTION 8.8 Liability for Payment/Expenses . Each Employer shall be liable for the payment of the Excess Benefits that are payable hereunder to the Participants who are Employees of such Employer. Expenses of administering the Plan shall be paid by the Employers, as directed by the Company.


ARTICLE IX
ADMINISTRATION OF PLAN

SECTION 9.1 Administration . (a) In general . The Plan shall be administered by the Plan Administrator. The Plan Administrator shall have discretion to interpret where necessary all provisions of the Plan (including, without limitation, by supplying omissions from, correcting deficiencies in, or resolving inconsistencies or ambiguities in, the language of the Plan), to make factual findings with respect to any issue arising under the Plan, to determine the rights and status under the Plan of Participants, or other persons, to resolve questions (including factual questions) or disputes arising under the Plan and to make any determinations with respect to the benefits payable under the Plan and the persons entitled thereto as may be

4




necessary for the purposes of the Plan. Without limiting the generality of the foregoing, the Plan Administrator is hereby granted the authority (i) to determine whether a particular Employee is a Participant, and (ii) to determine if a person is entitled to Excess Retirement Benefits hereunder and, if so, the amount of such Benefits. The Plan Administrator’s determination of the rights of any person hereunder shall be final and binding on all persons, subject only to the provisions of Sections 9.3 and 9.4 hereof.
(b) Delegation of Duties . The Plan Administrator may delegate any of its administrative duties, including, without limitation, duties with respect to the processing, review, investigation, approval and payment of Excess Retirement Benefits, to a named administrator or administrators.
SECTION 9.2 Regulations . The Plan Administrator shall promulgate any rules and regulations it deems necessary in order to carry out the purposes of the Plan or to interpret the provisions of the Plan; provided, however, that no rule, regulation or interpretation shall be contrary to the provisions of the Plan. The rules, regulations and interpretations made by the Plan Administrator shall, subject only to the provisions of Sections 9.3 and 9.4 hereof, be final and binding on all persons.

SECTION 9.3 Claims Procedures . The Plan Administrator shall determine the rights of any person to any Excess Retirement Benefits hereunder. Any person who believes that he has not received the Excess Retirement Benefits to which he is entitled under the Plan must file a claim in writing with the Plan Administrator. The Plan Administrator shall, no later than 90 days after the receipt of a claim (plus an additional period of 90 days if required for processing, provided that notice of the extension of time is given to the claimant within the first 90 day period), either allow or deny the claim in writing.

A written denial of a claim by the Plan Administrator, wholly or partially, shall be written in a manner calculated to be understood by the claimant and shall include:
(a)
the specific reasons for the denial;

(b)
specific reference to pertinent Plan provisions on which the denial is based;

(c)
a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(d)
an explanation of the claim review procedure and the time limits applicable thereto (including a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review).

A claimant whose claim is denied (or his duly authorized representative) may within 60 days after receipt of denial of a claim file with the Plan Administrator a written request for a review of such claim. If the claimant does not file a request for review of his claim within such 60-day period, the claimant shall be deemed to have acquiesced in the original decision of the Plan Administrator on his claim. If such an appeal is so filed within such 60 day period, the Compensation Committee shall conduct a full and fair review of such claim. During such review, the claimant shall be given the opportunity to review documents that are pertinent to his claim and to submit issues and comments in writing. For this purpose, the Compensation Committee shall have the same power to interpret the Plan and make findings of fact thereunder as is given to the Plan Administrator under Section 9.1(a) above.
The Compensation Committee shall mail or deliver to the claimant a written decision on the matter based on the facts and the pertinent provisions of the Plan within 60 days after the receipt of the request for review (unless special circumstances require an extension of up to 60 additional days, in which case written notice of such extension shall be given to the claimant prior to the commencement of such extension). Such decision shall be written in a manner calculated to be understood by the claimant, shall state the specific reasons for the decision and the specific Plan provisions on which the decision was based and shall, to the extent permitted by law, be final and binding on all interested persons. In addition, the notice of adverse determination shall also include statements that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of all documents, records and other information relevant to the claimant’s claim for benefits and a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA.
SECTION 9.4 Revocability of Action/Recovery . Any action taken by the Plan Administrator, an Employer, or the Compensation Committee with respect to the rights or benefits under the Plan of any person shall be revocable as to payments not yet made to such person, and acceptance of any Excess Retirement Benefits under the Plan constitutes acceptance of and agreement to the Plan Administrator’s, an Employer’s, or the Compensation Committee’s making

5




any appropriate adjustments in future payments to such person (or to recover from such person) any excess payment or underpayment previously made to him.

SECTION 9.5 Amendment . The Company (without the consent of any Employer but with the approval or ratification of the Compensation Committee) may at any time amend any or all of the provisions of this Plan, except that, without the prior written consent of the affected Participant, no such amendment may (i) reduce the amount of any Participant’s Excess Retirement Benefit as of the date of such amendment or (ii) change the payment provisions of Article VI except for changes that accelerate the payment of Benefits hereunder or that are deemed necessary or desirable in order to bring such provisions into compliance with the exceptions to Code Section 409A. Any amendment shall be in the form of a written instrument executed by an officer of the Company on the order of the Compensation Committee. Subject to the foregoing provisions of this Section, such amendment shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution.

SECTION 9.6 Termination . The Company (without the consent of any Employer but with the approval or ratification of the Compensation Committee), in its sole discretion, may terminate this Plan at any time and for any reason whatsoever, except that, without the prior written consent of the affected Participant, no such termination may (i) reduce the amount of any Participant’s Excess Retirement Benefit as of the date of such termination or (ii) change the payment provisions of Article VI except for changes that accelerate the payment of Benefits hereunder. Any such termination shall be expressed in the form of a written instrument executed by an officer of the Company on the order of the Compensation Committee. Subject to the foregoing provisions of this Section, such termination shall become effective as of the date specified in such instrument or, if no such date is specified, on the date of its execution. Written notice of any termination shall be given to the Participants at a time determined by the Plan Administrator. In the event of such termination, the Company may require the immediate payment of all Excess Retirement Benefits accrued hereunder in the form of a single lump sum payment.

Executed, this 16th day of December, 2014.
HAMILTON BEACH BRANDS, INC.

By:
/s/ Kathleen Diller
Name:
Kathleen Diller
Its:
Vice-President; General Counsel & Secretary
    





6



Exhibit 21

SUBSIDIARIES OF NACCO INDUSTRIES, INC.

The following is a list of active subsidiaries as of the date of the filing with the Securities and Exchange Commission of the Annual Report on Form 10‑K to which this is an Exhibit. Except as noted, all of these subsidiaries are wholly owned, directly or indirectly.
Name
Incorporation
 
 
Altoona Services, Inc.
Pennsylvania
America Lignite Energy LLC
Delaware (50%)
Bellaire Corporation
Ohio
C&H Mining Company, Inc.
Alabama
Caddo Creek Resources Company, LLC
Nevada
Camino Real Fuels, LLC
Nevada
Centennial Natural Resources, LLC
Nevada
Coyote Creek Mining Company, LLC
Nevada
Demery Resources Company, LLC
Nevada
The Coteau Properties Company
Ohio
The Falkirk Mining Company
Ohio
GRENAC, LLC
Delaware (50%)
Grupo HB/PS, S.A. de C.V.
Mexico
Hamilton Beach Brands Canada, Inc.
Ontario (Canada)
Hamilton Beach Brands Do Brasil Comercializacao de Produtos Electricos Ltda
Brazil (99.5%)
Hamilton Beach Brands de Mexico, S.A. de C.V.
Mexico
Hamilton Beach Brands, Inc.
Delaware
Hamilton Beach Brands, (HK) Limited
Hong Kong (PRC)
Hamilton Beach Electrical Appliances (Shenzhen) Company Limited
China
Hamilton Beach, Inc.
Delaware
Housewares Holding Co.
Delaware
The Kitchen Collection, LLC
Ohio
Liberty Fuels Company, LLC
Nevada
Mississippi Lignite Mining Company
Texas
NoDak Energy Investments Corporation
Nevada
NoDak Energy Services, LLC
Delaware
The North American Coal Corporation
Delaware
North American Coal Corporation India Private Limited
India
North American Coal Royalty Company
Delaware
Otter Creek Mining Company LLC
Nevada
Red Hills Property Company LLC
Mississippi
The Sabine Mining Company
Nevada
TRU Global Energy Services, LLC
Delaware
TRU Energy Services, LLC
Nevada
Reed Hauling, Inc.
Alabama
Reed Minerals, Inc.
Alabama
Weston Brands, LLC
Ohio






Exhibit 23.1

Consent of the Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:
(1)
Registration Statement (Form S-8 No. 33-3422) pertaining to the 1975 and 1981 Stock Option Plans and Stock Appreciation Rights Plan
(2)
Registration Statement (Form S-8 No. 333-139268) pertaining to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan
(3)
Registration Statement (Form S-8 No. 333-166944) pertaining to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan
(4)
Registration Statement (Form S-8 No. 333-183242) pertaining to the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Compensation Plan

of our reports dated March 9, 2015 , with respect to the consolidated financial statements and schedules of NACCO Industries, Inc. and Subsidiaries, and the effectiveness of internal controls over financial reporting of NACCO Industries, Inc. and Subsidiaries, and of our report dated March 9, 2015 , with respect to the Combined Financial Statements of The Unconsolidated Mines of the North American Coal Corporation, included in this Annual Report (Form 10-K) of NACCO Industries, Inc. for the year ended December 31, 2014 , filed with the Securities and Exchange Commission.
 
 
 
/s/ Ernst & Young LLP
Cleveland, Ohio
 
 
 
March 9, 2015
 
 
 









Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ Scott S. Cowen
 
February 12, 2015
 
Scott S. Cowen
 
Date
 






Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ John P. Jumper
 
February 12, 2015
 
John P. Jumper
 
Date
 





Exhibit 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ Dennis W. LaBarre
 
February 12, 2015
 
Dennis W. LaBarre
 
Date
 






Exhibit 24.4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ Richard de J. Osborne
 
February 12, 2015
 
Richard de J. Osborne
 
Date
 






Exhibit 24.5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ James A. Ratner
 
February 12, 2015
 
James A. Ratner
 
Date
 






Exhibit 24.6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ Britton T. Taplin
 
February 12, 2015
 
Britton T. Taplin
 
Date
 






Exhibit 24.7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ David F. Taplin
 
February 12, 2015
 
David F. Taplin
 
Date
 






Exhibit 24.8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of NACCO Industries, Inc. hereby appoints Elizabeth I. Loveman, J.C. Butler , Jr., John D. Neumann and Jesse L. Adkins as the true and lawful attorneys or attorneys-in-fact, with full power of substitution and revocation , for the undersigned and in the name, place and stead of the undersigned, to sign on behalf of the undersigned as director of NACCO Industries, Inc., a Delaware corporation, an Annual Report pursuant to Section 13 of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2014 and to sign any and all amendments to such Annual Report, and to file the same, with all exhibits thereto , and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys or attorneys-in-fact full power and authority to do so and perform each and every act and thing requisite and necessary to be done in and about the premises , as fully to all intents and purposes as the undersigned might or could do in person , hereby ratifying and confirming all that said attorneys or attorneys-in-fact substitute or substitutes ma y lawfully do or cause to be done by virtue hereof.
/s/ David B. H. Williams
 
February 12, 2015
 
David B. H. Williams
 
Date
 





Exhibit 31(i)(1)
Certifications
I, Alfred M. Rankin, Jr., certify that:
1.
I have reviewed this annual report on Form 10-K of NACCO Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
March 9, 2015
 
/s/ Alfred M. Rankin, Jr.
 
 
 
 
Alfred M. Rankin, Jr.
 
 
 
 
Chairman, President and Chief Executive Officer
(principal executive officer)
 





Exhibit 31(i)(2)
Certifications
I, Elizabeth I. Loveman, certify that:
1.
I have reviewed this annual report on Form 10-K of NACCO Industries, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected , or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
March 9, 2015
 
/s/ Elizabeth I. Loveman
 
 
 
 
Elizabeth I. Loveman
 
 
 
 
Vice President and Controller
(principal financial officer)
 





Exhibit 32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of NACCO Industries, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date:
March 9, 2015
 
/s/ Alfred M. Rankin, Jr.
 
 
 
 
Alfred M. Rankin, Jr.
 
 
 
 
Chairman, President and Chief Executive Officer
(principal executive officer)
 
Date:
March 9, 2015
 
/s/ Elizabeth I. Loveman
 
 
 
 
Elizabeth I. Loveman
 
 
 
 
Vice President and Controller
(principal financial officer)
 





Exhibit 95

MINE SAFETY DISCLOSURES

NACCO Industries, Inc. and its wholly owned subsidiaries (the “Company”) believes that The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”) is an industry leader in safety. NACoal has health and safety programs in place that include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation, regulatory compliance and program auditing. The objectives for NACoal's programs are to eliminate workplace incidents, comply with all mining-related regulations and provide support for both regulators and the industry to improve mine safety.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal or other mine is required to include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. The operation of NACoal's mines is subject to regulation by the Federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA inspects NACoal's mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. The Company has presented information below regarding certain mining safety and health matters for NACoal's mining operations for the year ended December 31, 2014 . In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and from mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes vacated.

During the year ended December 31, 2014 , neither NACoal's current mining operations nor Bellaire's closed mines: (i) were assessed any Mine Act section 104(b) orders for alleged failure to totally abate the subject matter of a Mine Act section 104(a) citation within the period specified in the citation; (ii) were assessed any Mine Act section 104(d) citations or orders for an alleged unwarrantable failure (i.e., aggravated conduct constituting more than ordinary negligence) to comply with a mining safety standard or regulation; (iii) were assessed any Mine Act section 110(b)(2) penalties for failure to correct the subject matter of a Mine Act section 104(a) citation within the specified time period, which failure was deemed flagrant (i.e., reckless or repeated failure to make reasonable efforts to eliminate a known violation that substantially and proximately caused, or reasonably could have been expected to cause, death or serious bodily injury); (iv) received any Mine Act section 107(a) imminent danger orders to immediately remove miners; or (v) received any MSHA written notices under Mine Act section 104(e) of a pattern of violation of mandatory health or safety standards or of the potential to have such a pattern. In addition, there were no mining-related fatalities at NACoal's mining operations or Bellaire's closed mines during the year ended December 31, 2014 .







The following table sets forth the total number of specific citations and orders, the total dollar value of the proposed civil penalty assessments that were issued by MSHA, the total number of legal actions initiated and resolved before the Federal Mine Safety and Health Review Commission ("FMSHRC") during the year ended December 31, 2014 , and the total number of legal actions pending before the FMSHRC at December 31, 2014 , pursuant to the Mine Act, by individual mine at NACoal:
Name of Mine or Quarry (1)
 
Mine Act Section 104 Significant & Substantial Citations (2)
 
Total Dollar Value of Proposed MSHA Assessment (3)
 
Number of Legal Actions Initiated before the FMSHRC for the year ended at December 31, 2014
 
Number of Legal Actions Resolved before the FMSHRC for the year ended at December 31, 2014
 
Number of Legal Actions Pending before the FMSHRC at December 31, 2014 (4)
 
 
 
 
 
 
 
 
 
 
 
MLMC (Red Hills Mine)
 

 
$

 

 

 

Coteau (Freedom Mine)
 
2

 
6,777

 
2

 
2

 

Falkirk (Falkirk Mine)
 
5

 
4,908

 

 

 

Sabine (South Hallsville No. 1 Mine)
 
1

 
1,809

 
1

 

 
1

Demery (Five Forks Mine)
 

 

 

 

 

Caddo Creek (Marshall Mine)
 

 

 

 

 

Coyote Creek (Coyote Creek Mine)
 

 

 

 

 

Camino Real (Eagle Pass Mine)
 

 

 

 

 

Liberty (Liberty Mine)
 

 

 

 

 

Reed Minerals:
 
 
 
 
 
 
 
 
 
 
Fishtrap Mine
 

 

 

 

 

Jap Creek Mine
 

 

 

 

 

Burton Bend Mine
 

 

 

 

 

Poplar Springs
 

 

 

 

 

Florida Limerock Operations:
 
 
 
 
 
 
 
 
 
 
White Rock Quarry - North
 
6

 
5,456

 

 

 

White Rock Quarry - South
 
1

 

 

 

 

Krome Quarry
 

 

 

 

 

Alico Quarry
 

 

 

 

 

FEC Quarry
 

 

 

 

 

SCL Quarry
 

 

 

 

 

 
 
 
 
 
 
 
 
 
 
 
Total
 
15

 
$
18,950

 
3

 
2

 
1


(1) Bellaire's closed mines are not included in the table above and did not receive any of the indicated citations.
(2) Mine Act section 104(a) significant and substantial citations are for alleged violations of a mining safety standard or regulation where there exists a reasonable likelihood that the hazard contributed to or will result in an injury or illness of a reasonably serious nature. Coteau's citations were reduced to non-significant and non-substantial after an agreement was reached with MSHA.
(3) Coteau, Sabine and White Rock Quarry - North are contesting $3,590, $243 and $5,344, respectively, of penalty assessments proposed during the year ended December 31, 2014.
(4) The pending legal action at Sabine is a contest to citations and orders received.










Exhibit 99












A U D I T E D C O M B I N E D F I N A N C I A L S T A T EME N T S
The Unconsolidated Mines of
The North American Coal Corporation
Years Ended December 31, 2014, 2013, and 2012
With Report of Independent Registered Public Accounting Firm






The Unconsolidated Mines of
The North American Coal Corporation
Audited Combined Financial Statements
Years Ended December 31, 2014, 2013 and 2012
Contents

Report of Independent Registered Public Accounting Firm ..........................................................1

Audited Combined Financial Statements

Combined Balance Sheets...............................................................................................................2
Combined Statements of Net Income..............................................................................................4
Combined Statements of Equity .....................................................................................................5
Combined Statements of Cash Flows..............................................................................................6
Notes to Combined Financial Statements .......................................................................................7








Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of NACCO Industries, Inc.

We have audited the accompanying combined balance sheets of The Unconsolidated Mines of The North American Coal Corporation as of December 31, 2014 and 2013, and the related combined statements of net income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2014. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of The Unconsolidated Mines of The North American Coal Corporation at December 31, 2014 and 2013, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with U.S. generally accepted accounting principles.



/ s / Ernst & Young LLP


Cleveland, Ohio
March 9, 2015


1



The Unconsolidated Mines of
The North American Coal Corporation

Combined Balance Sheets
(Amounts in Thousands)


 
December 31
 
2014
2013
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
 $ 17,556
 $ 19,864
Accounts receivable
            21,338
            28,999
Accounts receivable from affiliated companies
              1,029
                 115
Inventories
            97,054
            91,007
Deferred income taxes
              4,972
              4,483
Other current assets
                 753
                 619
Total current assets
          142,702
          145,087
 
 
 
Property, plant and equipment:
 
 
Coal lands and real estate
          112,063
          106,181
Advance minimum royalties
              1,308
              1,277
Plant and equipment
          966,244
          979,543
Construction in progress
            56,375
            24,746
 
       1,135,990
       1,111,747
Less allowance for depreciation, depletion,
 
 
 and amortization
        (522,046)
        (495,223)
 
          613,944
          616,524
Deferred charges:
 
 
Deferred lease costs
              4,714
              8,842
Other
                 418
                 449
 
              5,132
              9,291
 
 
 
Other assets:
 
 
   Note receivable from Parent Company
              3,625
              4,347
Other investments and receivables
          152,606
          104,679
 
          156,231
          109,026
Total assets
 $ 918,009
 $ 879,928

2



 
December 31
 
2014
2013
Liabilities and equity
 
 
Current liabilities:
 
 
Accounts payable
 $ 28,904
 $ 24,336
Accounts payable to affiliated companies
            57,752
            33,281
Current maturities of long-term obligations
            70,736
            65,416
Current mine closing accrual
                 311
              4,281
Other current liabilities
            20,138
            19,966
Total current liabilities
          177,841
          147,280
 
 
 
Long-term obligations:
 
 
Advances from customers
          191,992
          180,632
Notes payable
            78,827
            81,875
Capital lease obligations
          246,043
          281,229
 
          516,862
          543,736
Noncurrent liabilities:
 
 
Deferred income taxes
            29,512
            30,820
Mine closing accrual
          128,782
          122,388
Pension and post-retirement benefits
            55,452
            28,296
Other accrued liabilities
              5,340
              2,950
 
          219,086
          184,454
Equity:
 
 
Common stock and membership units
                 199
                 199
Capital in excess of stated value
                 791
                 791
Retained earnings
              3,230
              3,468
 
              4,220
              4,458
Total liabilities and equity
 $ 918,009
 $ 879,928
 
 
 

See accompanying notes to Combined Financial Statements

3



The Unconsolidated Mines of
The North American Coal Corporation

Combined Statements of Net Income
(Amounts in Thousands)

 
Years Ended December 31
 
2014
2013
2012
 
 
 
 
Lignite tons sold
            26,676
            25,910
            25,044
 
 
 
 
Income:
 
 
 
  Sales
 $ 572,680
 $ 570,864
 $ 535,848
  Other
              1,300
              1,038
              1,584
 
          573,980
          571,902
          537,432
 
 
 
 
Cost and expenses:
 
 
 
Cost of sales
          442,419
          435,056
          399,674
Depreciation, depletion, and amortization
            58,759
            63,491
            64,790
 
          501,178
          498,547
          464,464
Operating Profit
            72,802
            73,355
            72,968
 
 
 
 
Other income (expense)
 
 
 
Interest
          (24,811)
          (27,403)
          (27,584)
Gain (loss) on sale of assets
                 406
                 477
               (142)
 
          (24,405)
          (26,926)
          (27,726)
Income before income taxes
            48,397
            46,429
            45,242
 
 
 
 
Income taxes:
 
 
 
Current
            12,624
            12,868
            (3,319)
Deferred
            (1,556)
            (2,891)
            14,088
 
            11,068
              9,977
            10,769
Net income
 $ 37,329
 $ 36,452
 $ 34,473

See accompanying notes to Combined Financial Statements

4



The Unconsolidated Mines of
The North American Coal Corporation

Combined Statements of Equity
(Amounts in Thousands)

 
Years Ended December 31
 
2014
2013
2012
Common stock and membership units:
 
 
 
Beginning balance
 $ 199
 $ 199
 $ 198
Issuance of LLC membership units
                     –
                    –
                     1
 
                 199
                199
                 199
 
 
 
 
Capital in excess of stated value
                 791
                791
                 791
 
 
 
 
Retained earnings:
 
 
 
Beginning balance
              3,468
             1,375
              4,964
Net income
            37,329
           36,452
            34,473
Dividends paid
           (37,567)
          (34,359)
          (38,062)
 
              3,230
             3,468
              1,375
 
 
 
 
Total equity
 $ 4,220
 $ 4,458
 $ 2,365

See accompanying notes to Combined Financial Statements

5



The Unconsolidated Mines of
The North American Coal Corporation
Combined Statements of Cash Flows
(Amounts in Thousands)
 
Years Ended December 31
 
2014
2013
2012
Operating activities
 
 
 
Net income
$
37,329

 $ 36,452
 $ 34,473
Adjustments to reconcile net income to net cash
 
 
 
provided by operating activities:
 
 
 
Depreciation, depletion, and amortization
58,759

            63,491
            64,790
Amortization of deferred financing costs
31

                   31
                   31
(Gain) loss on sale of assets
(406
)
               (477)
                 142
Equity income in cooperatives
(858
)
               (565)
               (573)
Mine closing accrual
2,424

            (1,142)
               (677)
Deferred lease costs
3,899

              2,220
              1,016
Deferred income taxes
(1,556
)
            (2,891)
            14,088
Post-retirement benefits and other accrued liabilities
(1,393
)
            (7,608)
          (10,635)
Amortization of advance minimum royalties
49

                 238
                 149
Other noncurrent assets
(16,002
)
            (7,383)
          (16,114)
 
82,276

            82,366
            86,690
Working capital changes:
 
 
 
Accounts receivable
6,850

            18,020
            (5,560)
Inventories
(6,047
)
              2,204
          (13,040)
Accounts payable and other accrued liabilities
29,050

              7,084
                 146
Other changes in working capital
(136
)
                 328
                 520
 
29,717

            27,636
          (17,934)
Net cash provided by operating activities
111,993

          110,002
            68,756
 
 
 
 
Investing activities
 
 
 
Expenditures for property, plant, and equipment
(51,747
)
          (15,330)
          (31,440)
Additions to advance minimum royalties
(80
)
               (151)
                 (98)
Proceeds from sale of property, plant, and equipment
2,771

              1,048
              2,995
Net cash used for investing activities
(49,056
)
          (14,433)
          (28,543)
 
 
 
 
Financing activities
 
 
 
Additions to advances from customer, net
15,048

              1,602
              5,150
Payments received (made) on note from Parent Company, net
1,540

               (870)
              1,332
Issuance of equity units
                     –

                     –
                     1
Additions to long-term obligations
                     –

                     –
            65,000
Repayment of long-term obligations
(44,266
)
          (46,702)
          (71,877)
Financing fees paid
                     –

                     –
               (306)
Dividends paid
(37,567
)
          (34,359)
          (38,062)
Net cash used for financing activities
(65,245
)
          (80,329)
          (38,762)
 
 
 
 
(Decrease) increase in cash and cash equivalents
(2,308
)
            15,240
              1,451
Cash and cash equivalents at beginning of year
19,864

              4,624
              3,173
Cash and cash equivalents at end of year
$
17,556

 $ 19,864
 $ 4,624
See accompanying notes to Combined Financial Statements

6


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


December 31, 2014, 2013 and 2012


1. Organization
The Coteau Properties Company, The Falkirk Mining Company, The Sabine Mining Company, Demery Resources Company, LLC, Caddo Creek Resources Company, LLC, Camino Real Fuels, LLC, Coyote Creek Mining Company LLC, and Liberty Fuels, LLC (collectively, the “Unconsolidated Mines”) are each wholly owned subsidiaries of The North American Coal Corporation (Parent Company), which is a wholly owned subsidiary of NACCO Industries, Inc. (Ultimate Parent Company).
During 2003, the Parent Company adopted authoritative guidance issued by the Financial Accounting Standards Board (FASB) on Consolidation of Variable Interest Entities. The guidance clarifies the application of authoritative guidance on Consolidated Financial Statements for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. As a result of the adoption, the Parent Company is not the primary beneficiary of the Unconsolidated Mines and does not consolidate these entities’ financial position or results of operations. The Unconsolidated Mines are still considered under common management of the Parent Company and, therefore, are reflected collectively in the Unconsolidated Mines’ audited combined financial statements.
The Coteau Properties Company : The Coteau Properties Company (Coteau), an Ohio corporation, was organized on May 23, 1972, pursuant to an agreement between the Parent Company and a wholly owned subsidiary of a diversified energy company (Buyer). Coteau is principally engaged in lignite mining through the operation of a surface mine in North Dakota.
On April 22, 1977, the Buyer exercised its option to enter into a coal sales agreement, as restated June 1, 1979. As of November 1, 1988, all of the Buyer’s rights, interests, and obligations under the coal sales agreement were assigned to Dakota Coal Company (Coteau’s Customer), a wholly owned subsidiary of Basin Electric Power Cooperative (Basin). This coal sales agreement was subsequently replaced with a coal sales agreement, as amended, between Coteau and Coteau’s Customer (Coteau Agreement) and provides Coteau with the option to extend Coteau’s agreement up to the year 2037 and provides for reimbursement of administrative and general expenses, included in cost of sales in the combined statements of net income and comprehensive income, from actual costs to reimbursement at a fixed rate per ton.
Under the terms and conditions of the Coteau Agreement, Coteau is to supply coal to an electric generating station and a coal gasification plant, as well as to other third parties. The terms of a related option agreement, as amended, provide that, under certain conditions of default, Coteau’s Customer may acquire the assets, subject to the liabilities, for an amount equal to the equity of Coteau.
The Falkirk Mining Company : The Falkirk Mining Company (Falkirk), an Ohio corporation, was organized on August 22, 1974, to enter into a coal sales agreement (Falkirk Agreement) with an electric generation and transmission cooperative (Falkirk’s Customer). Falkirk’s agreement was restated effective January 1, 2007, to extend the agreement to 2045. Falkirk is principally engaged in lignite mining through the operation of a surface mine in North Dakota.

7


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Under the terms of the Falkirk Agreement, Falkirk’s Customer has agreed to provide, or procure from others, the financing required to develop, equip, and operate Falkirk’s mine for the life of the Falkirk Agreement. The Falkirk Agreement provides that, under certain conditions of Falkirk’s default, Falkirk’s Customer may acquire the assets, subject to the liabilities, for an amount equal to the equity of Falkirk.
Falkirk’s Customer has entered into an operating agreement with Falkirk whereby a dragline to be used in the production of coal (original cost of approximately $40,000) leased by Falkirk’s Customer has been made available to Falkirk without rent.
The Sabine Mining Company : The Sabine Mining Company (Sabine), a Nevada corporation, was organized on November 6, 1980, and entered into a lignite mining agreement, as restated, (Sabine Agreement) with a public utility (Sabine’s Customer) in 1981, which was subsequently amended and restated on January 1, 1996, December 1, 2001 and January 1, 2008. Sabine is principally engaged in lignite mining through the operation of a surface mine in Texas.
The Sabine Agreement provides that, under certain conditions of default, Sabine’s Customer may acquire the issued and outstanding common stock of Sabine for an amount equal to the equity of Sabine.
Other entities: Demery Resources Company, LLC (Demery), Caddo Creek Resources Company, LLC (Caddo), Camino Real Fuels, LLC (Camino Real), Coyote Creek, LLC (Coyote) and Liberty Fuels Company, LLC (Liberty) were all formed during 2008, 2009, and 2012 to develop, construct, and operate lignite surface mines under long-term contracts for their respective customers. The contracts with the customers allow for reimbursement of all costs plus a management fee. Demery and Caddo have had some minimal deliveries during the year. Camino Real, Coyote, and Liberty are building mines or developing plans to build mines and therefore do not currently mine or deliver coal.
Since each of the Unconsolidated Mines has an agreement to provide coal to their respective customers, a significant portion of each of the Unconsolidated Mines’ revenue is derived from a single source. The financial position of the Unconsolidated Mines and the Parent Company would be materially affected if the existing contractual relationship with any of the Unconsolidated Mines’ customers were terminated or significantly altered.
Management performed an evaluation of the Unconsolidated Mines’ activities thro ugh March 9, 201 5 which is the date these financial statements were issued. No significant subsequent events have occurred that required recognition or disclosure in these financial statements.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

8


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Revenue Recognition and Accounts Receivable
Under their respective mining agreements, the Unconsolidated Mines recognize revenue and a related receivable as coal is delivered. The sales price of the coal is based on costs, plus a profit or management fee per ton of coal delivered. As is customary in the coal industry, these agreements provide for monthly settlements. The Unconsolidated Mines’ significant credit concentration is uncollateralized; however, historically, no credit losses have been incurred. Management has reviewed the carrying value of its accounts receivable and has determined that a reserve for credit losses is not necessary based on amounts subsequently realized.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investments with initial maturities of three months or less. After considering the right of offset, outstanding checks net of their associated funding accounts, are classified as accounts payable.
Inventories
Coal and supply inventories are stated at the lower of cost or market. Cost is determined using the weighted-average method.
Property, Plant and Equipment
Property, plant, and equipment are recorded at cost. Depreciation, depletion, and amortization are provided in amounts sufficient to amortize the cost of related assets (including assets recorded under capitalized lease obligations) over their estimated useful lives or lease terms and are calculated by either the straight-line method or the units-of-production method based on estimated recoverable tonnage. In the course of preparing a mine for production, the Unconsolidated Mines incur mine development costs prior to initial production, as well as throughout the life of the mine. The Unconsolidated Mines capitalize these costs as a part of plant and equipment in the accompanying combined balance sheets. The Unconsolidated Mines amortize the development costs over their estimated useful life, which is generally a units-of-production method. Repairs and maintenance costs are expensed when incurred, unless such costs extend the estimated useful life of the asset, in which case such costs are capitalized and depreciated.
Advance Minimum Royalties
Advance minimum royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production. These advanced payments are capitalized when paid and charged against income as the coal reserves are mined.
Long-Lived Assets
Upon identification of indicators of impairment, management compares the carrying value of its long-lived assets to the undiscounted cash flows of such assets. When the undiscounted cash flows are less than the related assets’ carrying value, the long-lived assets are adjusted to fair value (based on active market quotes, third-party appraisals, or discounted cash flows).

9


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Accounting for Asset Retirement Obligations
Under certain federal and state regulations, the Unconsolidated Mines are required to reclaim land disturbed as a result of mining. Reclamation of disturbed land is a continuous process throughout the terms of the mining agreements. Current reclamation costs are charged to expense in the period incurred and are being recovered as a cost of coal tonnage sold. Costs to complete reclamation after mining has been completed are to be reimbursed under the respective mining agreements.
Authoritative guidance on accounting for asset retirement obligations provides accounting requirements for retirement obligations associated with tangible long-lived assets, including: (i) the timing of liability recognition; (ii) initial measurement of the liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent measurement of the liability; and (v) financial statement disclosures. The guidance requires that an asset’s retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method.
The Unconsolidated Mines’ asset retirement obligations are for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. The Unconsolidated Mines have estimated these costs and recognized a liability and associated asset in accordance with authoritative guidance. The Unconsolidated Mines determined these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted, risk-free interest rate. The accretion of the liability is being recognized over the estimated life of the individual asset retirement obligations. The associated asset is recorded in property, plant, and equipment in the accompanying balance sheets.
Since the cost of reclamation is reimbursable under the provisions of the mining agreements, the difference between the capitalized asset retirement obligation and the reclamation liability is recorded as a long-term receivable from the customers. Additionally, the annual costs related to amortization of the asset and accretion of the liability of $9,983, $11,002, and $18,786 in 2014, 2013, and 2012, respectively, are included in cost of sales, and increases the sales to, and the long-term receivable from, the customers. The long-term receivable (see Note 4) will be reimbursed to the Unconsolidated Mines as the costs of reclamation are actually incurred.
There are currently no assets legally restricted for purposes of settling these asset retirement obligations. A reconciliation of the beginning and ending aggregate carrying amount of the asset retirement obligations is as follows:
 
December 31
 
2014
2013
 
 
 
Beginning balance
$
126,669

$
131,601

Liabilities incurred during the period

1,230

Liabilities settled during the period
(3,970
)
(7,529
)
Accretion expense
6,394

6,390

Revision in cash flows

(5,023
)
 
$
129,093

$
126,669


10


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)



Financial Instruments and Derivative Financial Instruments
Financial instruments held by the Unconsolidated Mines include cash and cash equivalents, accounts receivable, accounts receivable from an affiliate, accounts payable and long-term debt. The Unconsolidated Mines do not hold or issue financial instruments or derivative financial instruments for trading purposes.
3. Inventories
Inventories are as follows:
 
December 31
 
2014
2013
 
 
 
Coal
$
29,970

$
25,662

Supplies
67,084

65,345

 
$
97,054

$
91,007


4. Other Investments and Receivables
Other investments and receivables consist of the following:
 
December 31
 
2014
2013
Long-term receivable from Unconsolidated Mine customers related to:
 
 
   Asset retirement obligation
$
49,627

$
44,016

   Pension and retiree medical obligation
57,459

25,872

   Reclamation bond
17,922

17,922

Investment in cooperatives
16,378

15,520

Other
11,531

6,031

 
152,917

109,361

Less asset retirement obligation included in current
 
 
  accounts receivable
311

4,682

 
$
152,606

$
104,679


The long-term receivables will be reimbursed to the Unconsolidated Mines as the costs of reclamation, pension and retiree medical obligations are actually incurred or paid.
One of the Unconsolidated Mines holds investments in cooperatives that provide electrical service to the mine site. Patronage dividends from cooperatives are recorded as declared. The dividends declared are consistently paid out, but routinely several years after the declaration. These patronage dividends when declared are reflected as a reduction in the cost of coal under the mining agreements. In the event the cooperatives should become unable to pay the patronage dividends previously declared, the Unconsolidated Mines would be required at that time to record an impairment charge against the investment asset, which would be reimbursable under the mining agreement.

11


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


5. Accrued Liabilities
Other current liabilities consist of the following:
 
December 31
 
2014
2013
 
 
 
Accrued payroll
$
13,578

$
13,607

Other
6,560

6,359

 
$
20,138

$
19,966


6. Advances From Customers and Notes Payable
Advances from Customers
Advances from customers represent amounts advanced to Coteau and Falkirk from their customers or their affiliates to provide working capital and to develop and operate the mines. These advances, which are not guaranteed by either the Parent Company or the Ultimate Parent Company, are secured by substantially all owned assets and assignment of all rights under the agreements. Coteau’s advances incur an average weighted interest rate of 4.0%. No repayment schedule has been established for Falkirk’s advances, which are noninterest-bearing, due to the funding agreement with the customer.
Estimated maturities for Coteau for the next five years, including current maturities, and Falkirk’s customer advances with unspecified repayment schedules are as follows:
 
 
2015
$
14,065

2016
5,158

2017
5,119

2018
5,119

2019
5,119

Thereafter
77,749

                                                                                                                         
112,329

Advances with unspecified repayment schedule
102,591

Total advances from customers
214,920

Less current maturities
22,928

Total long-term advances from customers
$
191,992


12


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Notes Payable
Notes payable primarily represents financing which customers arranged and guaranteed for Sabine. Neither the Parent Company nor the Ultimate Parent Company has guaranteed these borrowings. Certain notes payable of Sabine include a fixed charge coverage covenant. Sabine was in compliance with this covenant at December 31, 2014. Notes payable consist of the following:
 
December 31
 
2014
2013
Promissory note payable due July 31, 2015 to a bank under a revolving agreement providing for borrowings up to $10,000. Interest is based on the bank’s daily cost of funds plus 1.75% (1.80 and 1.78% at December 31, 2014 and 2013, respectively)
$

$

Secured note payable due August 21, 2031, with semiannual principle and interest payments at an interest rate of 4.58% on the unpaid balance
56,875

60,125

Secured note payable due October 31, 2024, with semiannual interest payments at an interest rate of 6.37% on the unpaid balance
25,000

25,000

Other
404


Total notes payable
82,279

85,125

Less current portion
3,452

3,250

Long-term portion of notes payable
$
78,827

$
81,875


Under the terms of all note agreements, substantially all assets of Sabine are pledged and all rights under the mining agreements are assigned.

Notes payable maturities for the next five years are as follows:
 
 
2015
3,452

2016
3,452

2017
3,250

2018
3,250

2019
3,250

Thereafter
65,625

 
$
82,279


Commitment fees paid to banks were approximately $79, $76 and $116 in 2014, 2013 and 2012, respectively, and are included in interest expense in the accompanying combined statements of net income and comprehensive income.

13


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


In 2012, one of the Unconsolidated Mines issued new debt in the amount of $65,000 in a private placement offering. The proceeds from this transaction were used to retire the secured note payable due in 2012, pay the balance outstanding in the revolving agreement, and provide additional capital for expansion. Under the terms of the new notes, interest at 4.58% is payable semiannually, and principal is due in even semiannual installments over the 20 year life of the notes. As with the debt it replaced, neither the Parent Company nor the Ultimate Parent Company have guaranteed this borrowing.
7. Pension and Other Postretirement Benefits
Defined Benefit Plans
Substantially all the Unconsolidated Mines’ salaried employees hired prior to January 1, 2000, participate in The North American Coal Corporation Salaried Employees Pension Plan (the Plan), a noncontributory defined benefit plan sponsored by the Parent Company. Pension benefits for certain management level employees were frozen effective December 31, 2004. During 2013, the Company amended the Combined Defined Benefit Plan for the Ultimate Parent and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees effective as of the close of business on December 31, 2013. Employees whose benefits were frozen receive retirement benefits under defined contribution retirement plans. As a result of this amendment, the Company remeasured the Combined Plan and recorded a $1,622 pre-tax curtailment loss.
The Company also approved freezing all pension benefits under its Supplemental Retirement Benefit Plan (the “SERP”). In years prior to 2013, benefits other than COLA’s were frozen for all SERP participants. Effective as of the close of business on December 31, 2013, all COLA benefits under the SERP were eliminated for all plan participants.
Benefits under the defined benefit pension plans are based on years of service and average compensation during certain periods. The Unconsolidated Mines made contributions to this plan of $2,213 in 2014. The Unconsolidated Mines expect to make supplemental payments and pay benefits from the assets of the Plan of $7,069 in 2015, $7,750 in 2016, $8,508 in 2017, $9,244 in 2018, $9,918 in 2019, and $58,094 in the five years thereafter.
The following is a detail of the net periodic pension expense of the Unconsolidated Mines, using an assumed discount rate of 4.75% and 3.90% /4.70% in 2014 and 2013, respectively:
 
Year Ended December 31
 
2014
2013
2012
 
 
 
 
           Service cost
$

$
3,988

$
4,342

           Interest cost
7,983

8,202

8,482

           Expected return on plan assets
(11,739)

(10,950)

(9,514)

           Amortization of actuarial loss
105

4,592

5,324

           Amortization of prior service cost
26

423

702

           Curtailment loss

1,622


           Net periodic pension (income) expense
$
(3,625
)
$
7,877

$
9,336



14


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The following is a detail of the changes in plan assets and benefit obligations recognized in long-term receivable from customers:

 
Year Ended December 31
 
2014
2013
2012
 
 
 
 
           Current year actuarial loss (gain)
$
31,590

$
(60,533
)
$
14,500

           Current year prior service credit

(540)


           Amortization of actuarial loss
(105)

(4,592)

(5,324)

           Amortization of prior service cost
(26)

(423)

(702)

           Recognition of curtailment cost

(1,622)


           Asset transfer
(174)



           Amount recognized in long-term receivable
$
31,285

$
(67,710
)
$
8,474


The following sets forth the Unconsolidated Mines portion of the changes in the benefit obligation and plan assets of the defined benefit plans of the Unconsolidated Mines at:
 
December 31
 
2014
2013
Change in benefit obligation:
 
 
Projected benefit obligation at beginning of year
$
171,190
 
$
211,471

Service cost
 
3,988

Interest cost
7,983
 
8,202

Plan amendment
 
(432
)
Actuarial loss (gain)
32,282
 
(26,020
)
Benefits paid
(6,171
)
(5,448
)
Curtailment
 
(20,530
)
SERP transfer to Parent
(508
)
(41
)
Projected benefit obligation at end of year
$
204,776
 
$
171,190

 
 
 
Change in plan assets:
 
 
Fair value of plan assets at beginning of year
$
165,349
 
$
134,418

Actual return on plan assets
12,666
 
25,764

Employer contributions
2,213
 
11,337

Benefits paid
(6,171
)
(5,448
)
Asset transfers
(234
)
(722
)
Fair value of plan assets at end of year
$
173,823
 
$
165,349

 
 
 
Funded status at end of year
$
(30,953
)
$
(5,841
)




15


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Amounts recognized in the combined balance sheets consist of:
 
December 31
 
2014
2013
 
 
 
Current liabilities
$
(25
)
$
(50
)
Noncurrent liabilities
(30,928
)
(5,791
)
 
$
(30,953
)
$
(5,841
)


Components of long-term receivables from customers consist of:
 
December 31
 
2014
2013
 
 
 
Actuarial loss
$
40,340
 
$
8,667

Prior service cost
155
 
542

 
$
40,495
 
$
9,209


The actuarial loss and prior service cost included in long-term receivables from customers expected to be recognized in net periodic benefit cost in 2015 are $1,066 ($693 net of tax) and $8 ($5 net of tax), respectively.
The projected benefit obligation included in the table above represents the actuarial present value of benefits attributable to employee service rendered to date.
The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Ultimate Parent considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Ultimate Parent’s estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.

The Plan maintains an investment policy that, among other things, establishes a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policy provides that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.

16


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The following is the actual allocation percentage and target allocation percentage for the plan assets at the measurement date:
 
Actual 2014
Actual 2013
Target Allocation Range
 
 
 
 
U.S. equity securities
55.3
%
53.6
%
41.0%-62.0%
Non-U.S. equity securities
11.3
%
13.0
%
10.0%-16.0%
Fixed income securities
32.9
%
32.9
%
30.0%-40.0%
Money market
0.5
%
0.5
%
  0.0%-10.0%
 
 
 
 

The fair value of each major category of plan assets for the Unconsolidated Mines’ pension plans are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. Following are the values as of December 31:
 
2014
2013
 
 
 
U.S. equity securities
$
95,327

$
88,559

Non-U.S equity securities
19,838

21,422

Fixed income securities
57,921

54,471

Money market
737

897

Total
$
173,823

$
165,349


Postretirement Health Care
The Parent Company also maintains health care plans which provide benefits to eligible retired employees, including employees of the Unconsolidated Mines. Effective December 31, 2008, postretirement health care plan amendments for the Unconsolidated Mines eliminated all post-65 welfare coverage and Medicare reimbursements. The Unconsolidated Mines expect to pay benefits of $1,751 in 2015, $2,101 in 2016, $2,346 in 2017, $2,601 in 2018, $2,942 in 2019 and $15,136 in the five years thereafter.

The following is a detail of the net periodic benefit expense for postretirement health care and life insurance for the Unconsolidated Mines, using an assumed discount rate of 3.85% and 3.05% in 2014 and 2013, respectively:
 
Year Ended December 31
 
2014
2013
2012
 
 
 
 
Service cost
$
674

$
733

$
727

Interest cost
1,050

826

990

Expected return on plan assets
(227)

(274)

(323)

Amortization of actuarial loss
672

741

662

Amortization of prior service credit
(417)

(825)

(825)

Net periodic postretirement expense
$
1,752

$
1,201

$
1,231



17


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The following is a detail of the changes in plan assets and benefit obligations recognized in long-term receivable from customers:
 
Year Ended December 31
 
2014
2013
2012
 
 
 
 
Current year actuarial loss (gain)
$
718

$
(53
)
$
959

Amortization of actuarial loss
(672)

(741)

(662)

Amortization of prior service credit
417

825

825

Amount recognized in long-term receivable
$
463

$
31

$
1,122


The following sets forth the changes in the benefit obligations and plan assets during the year of the postretirement health care and life insurance plans:
 
December 31
 
2014
2013
Change in benefit obligation:
 
 
Benefit obligation at beginning of year
$
27,384

$
27,039

Service cost
674

733

Interest cost
1,050

826

Actuarial loss
685

335

Benefits paid
(1,320)

(1,549)

Benefit obligation at end of year
$
28,473

$
27,384

 
 
 
Change in plan assets:
 
 
Fair value of plan assets at beginning of year
$
4,293

$
4,980

Actual return on plan assets
230

661

Employer contributions
549

477

Benefits and taxes paid
(1,673)

(1,825)

Fair value of plan assets at end of year
$
3,399

$
4,293

 
 
 
Funded status at end of year
$
(25,074
)
$
(23,091
)
Amounts recognized in the consolidated balance sheets consist of:
 
 
   Current liabilities
$
(551
)
$
(586
)
   Noncurrent liabilities
(24,523
)
(22,505
)
 
$
(25,074
)
$
(23,091
)
Components of long-term receivables from customers consist of:
 
 
   Actuarial loss
$
7,284

$
7,237

   Prior service credit
(339
)
(755
)
 
$
6,945

$
6,482



18


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The actuarial loss and prior service credit included in long-term receivables from customers expected to be recognized in net periodic benefit credit in 2015 are $705 ($458 net of tax) and $247 ($161 net of tax), respectively.
Some of the Unconsolidated Mines established Voluntary Employees’ Beneficiary Association (VEBA) trusts to provide for future retirement benefits other than pensions. The Unconsolidated Mines made cash contributions to the VEBA trust of $0 in 2014 and 2013, respectively. Contributions made to an IRS-approved VEBA trust are irrevocable and must be used for employee benefits.
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects at December 31, 2014:
 
1-Percentage-
Point Increase
1-Percentage-
Point Decrease
 
 
 
Effect on total of service and interest cost
$
130

$
(117
)
Effect on postretirement benefit obligation
$
1,736

$
(1,633
)

Assumptions used in accounting for the pension and postretirement health care and life insurance benefit plans were as follows for the years ended:
 
December 31
 
2014
2013
2012
 
 
 
 
Weighted-average discount rates - pension
3.95%
4.75%
3.90%
Weighted-average discount rates - postretirement
3.25%
3.85%
3.05%
Rate of increase in compensation levels
NA
NA
3.75%
Expected long-term rate of return on assets-pension
7.75%
7.75%
8.25%
Expected long-term rate of return on assets-postretirement
6.00%
6.00%
6.50%
Health care cost trend rate assumed for next year
7.00%
7.00%
7.50%
Ultimate health care cost trend rate
5.00%
5.00%
5.00%
Year that the rate reaches the ultimate trend rate
2021
2021
2018

19


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Defined Contribution Plans
For employees hired after December 31, 1999, the Parent Company established a defined contribution plan which requires the Unconsolidated Mines to make retirement contributions based on a formula using age and salary as components of the calculation. For employees hired after December 31, 2005, some of the Unconsolidated Mines contribute a set percentage of the employee’s salary. Employees are vested at a rate of 20% for each year of service and become 100% vested after five years of employment. The Unconsolidated Mines recorded contribution expense of approximately $6,469 in 2014, $3,412 in 2013, and $2,900 in 2012 related to this plan.
Substantially all the Unconsolidated Mines’ salaried employees also participate in a defined contribution plan sponsored by the Parent Company. Employee contributions are matched by the Unconsolidated Mines up to a limit of 5% of the employee’s salary. The Unconsolidated Mines’ contributions to this plan were approximately $5,750 in 2014, $5,164 in 2013, and $4,682 in 2012.

8. Leasing Arrangements and Other Commitments
The Unconsolidated Mines lease certain equipment under cancelable and non-cancelable capital and operating leases that expire at various dates through 2037. Many leases are renewable for additional periods at terms based upon the fair market value of the leased items at the renewal dates.
Future minimum lease payments as of December 31, 2014, for all capital lease obligations are as follows:
 
 
2015
$
57,789

2016
51,150

2017
48,424

2018
34,813

2019
30,733

Thereafter
144,821

Total minimum lease payments
367,730

Amounts representing interest
(77,331)

Present value of net minimum lease payments
290,399

Current maturities
(44,356)

Long-term capital lease obligations
$
246,043


As of December 31, 2014, $132,953 of the long-term capital lease obligations and $13,327 of the current maturities in the table above are due to a customer of one of the Unconsolidated Mines.

20


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


Amortization of assets recorded under capital lease obligations is included in depreciation, depletion, and amortization in the combined statement of net income and comprehensive income. Assets recorded under capital leases are included in property, plant, and equipment and consist of the following:
 
December 31
 
2014
2013
 
 
 
Plant and equipment
$
477,213

$
486,756

Accumulated amortization
(193,776)

(173,774)

 
$
283,437

$
312,982



Under the provisions of the mining agreements, the customers are required to pay, as a part of the cost of coal delivered, an amount equal to the annual lease payments. Interest and amortization expense in excess of annual lease payments are deferred and recognized in years when annual lease payments exceed interest expense and amortization. These excess costs are recorded as receivables from the customers and are included in deferred lease costs in the accompanying combined balance sheets.
Future minimum lease payments on long-term cancelable operating leases at December 31, 2014, are as follows:
 
 
2015
$
365

2016
186

2017
97

2018
27

2019

 
$
675


Rental expense for all operating leases was $4,642 in 2014, $2,523 in 2013, and $1,961 in 2012.

9. Income Taxes
The Unconsolidated Mines are included in the consolidated federal income tax return filed by the Ultimate Parent Company. The Unconsolidated Mines have entered into a tax-sharing agreement with the Ultimate Parent Company under which federal income taxes are computed by the Unconsolidated Mines on a separate return basis. The current portion of such tax is paid to the Ultimate Parent Company, except that net operating loss and tax credit carryovers that benefit the consolidated tax return are advanced to the Unconsolidated Mines and are repaid as utilized on a separate-return basis. To the extent that these carryovers are not used on a separate return basis, the Unconsolidated Mines are required, under conditions pursuant to the tax-sharing agreement, to refund to the Ultimate Parent Company the balance of carryovers advanced and not used by the Unconsolidated Mines prior to the expiration of such carryovers.


21


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The provision for income taxes consists of the following:
 
Year Ended December 31
 
2014
2013
2012
Current:
 
 
 
Federal
$
12,624

$
12,868

$
(3,319
)
Total current tax provision (benefit)
12,624

12,868

(3,319)

 
 
 
 
Deferred:
 
 
 
Federal
(1,556)

(2,891)

14,088

Total deferred tax (benefit) provision
(1,556)

(2,891)

14,088

Total provision for income taxes
$11,068

$9,977

$10,769


A reconciliation of the federal statutory and effective income tax is as follows:
 
Years Ended December 31
 
2014
2013
2012
 
 
 
 
Income before income taxes
$
48,397

$
46,429

$
45,242

 
 
 
 
Statutory taxes at 35.0%
$
16,939

$
16,249

$
15,836

Percentage depletion
(5,480)

(5,575)

(3,892)

Other - net
(391)

(697)

(1,175)

Income tax provision
$
11,068

$
9,977

$
10,769

 
 
 
 
Effective income tax rate
22.87%

21.49%

23.80%


A summary of the primary components of the deferred tax assets and liabilities included in the accompanying combined balance sheets resulting from differences in the book and tax basis of assets and liabilities are as follows:

 
December 31
 
2014
2013
Deferred tax assets:
 
 
Accrued expense and reserves
$
8,597

$
7,888

Asset valuation
7,367

6,750

Inventory
3,625

1,967

Other employee benefits
1,751

1,454

Total deferred tax assets
21,340

18,059

Deferred tax liabilities:
 
 
Property, plant, and equipment
(40,103)

(40,580)

Pensions
(6,016)

(3,816)

Total deferred tax liabilities
(46,119)

(44,396)

Net deferred tax liability
$
(24,779
)
$
(26,337
)


22


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


The Unconsolidated Mines regularly review the need for a valuation allowance against deferred tax assets and recognizes these deferred tax assets to the extent that realization is more likely than not. Based on a review of earnings history and trends, forecasted earnings, and the relevant expiration of carryforwards, the Unconsolidated Mines believe that no valuation allowance was necessary at December 31, 2014 or 2013.
10. Fair Value of Financial Instruments
The carrying amounts for cash and cash equivalents, accounts receivable, accounts receivable from an affiliate, and accounts payable approximate fair value due to the short term maturities of these instruments. The fair value of notes payable and one of the Unconsolidated Mines advances from customer were determined based on the discounted value of the future cash flows and one of the Unconsolidated Mines advances from customer, which has no specified repayment schedule was determined based on the discounted value of the total payment at the end of the contract term, using borrowing rates currently available to the Unconsolidated Mines for bank loans with similar terms and maturities, taking into account company credit risk.

The fair value compared to the carrying value is summarized as follows:
 
December 31
 
2014
2013
Fair value:
 
 
Notes payable
$
(88,422
)
$
(81,848
)
Advances from customers
$
(149,235
)
$
(130,318
)
 
 
 
Carrying value:
 
 
Notes payable
$
(82,279
)
$
(85,125
)
Advances from customers
$
(214,920
)
$
(199,872
)


23


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


11. Equity
The components of common stock and capital in excess of stated value at December 31, 2014 is as follows:
 
Common Stock
Capital in Excess
of Stated Value
Coteau common stock, without par value (stated value $10 per share) - authorized 1,000 shares; issued and outstanding 100 shares
$1

$791

Falkirk common stock, without par value (stated value $1,919.30 a share) - authorized 1,000 shares; issued and outstanding 100 shares
192


Sabine common stock, $1 par value - authorized, issued and outstanding 1,000 shares
1


Demery membership units, $10 par value - authorized, issued and outstanding 100 shares
1


Caddo membership units, $10 par value - authorized, issued and outstanding 100 shares
1


Camino Real membership units, $10 par value - authorized, issued and outstanding 100 shares
1


Liberty membership units, $10 par value - authorized, issued and outstanding 100 shares
1


Coyote Creek membership units, $10 par value - authorized, issued and outstanding 100 shares
1


 
$199

$791


As noted previously, Demery, Caddo, and Camino Real were all formed in 2008, Liberty Fuels was formed in 2009, and Coyote was formed in 2012. These entities have been originally structured as single member limited liability companies primarily for the reduced administrative requirements, flexible profit distribution and pass-through tax attributes available with this form of entity.

12. Supplemental Cash Flow Information
 
December 31
 
2014
2013
2012
Cash paid (received) during the year for:
 
 
 
Interest
$
24,968

$
27,500

$
26,436

Income taxes
12,087

(2,765)

9,025

Property, plant, and equipment:
 
 
 
Capital leases and land
4,808

10,354

99,902

Deferred lease costs
(202)

70

(28)

Lease obligations
(7,606)

(10,424)

(99,874)

Accounting for asset retirement obligations:
 
 
 
Change in property, plant, and equipment

(3,794)

30,975

Change in receivables from customers including depreciation billed
5,611

3,206

(13,810)

Change in liabilities
(2,424)

4,932

(26,120)


24


The Unconsolidated Mines of
The North American Coal Corporation

Notes to Combined Financial Statements
(Amounts in Thousands)


13. Transactions With Affiliated Companies
Costs and expenses include net payments of approximately $3,274, $2,822 and $1,632 in 2014, 2013 and 2012, respectively, for administrative and other services from the Ultimate Parent Company, the Parent Company, and their subsidiaries.
Accounts receivable and accounts payable with the Ultimate Parent Company and the Parent Company represent the timing of income taxes and dividends within the affiliated group. In addition accounts payable to affiliated companies includes a payable for a dragline sold from the Parent Company to one of the unconsolidated mines.
The note receivable from Parent Company of $2,807 and $4,347 in 2014 and 2013, respectively, is a demand note with interest of 0.38% at December 31, 2014 and 0.32% at December 31, 2013.
14. Contingencies
Various legal and regulatory proceedings and claims have been or may be asserted against the Unconsolidated Mines relating to the conduct of their businesses, including environmental and other claims. These proceedings are incidental to the ordinary course of business of the Unconsolidated Mines. Management believes that it has meritorious defenses and will vigorously defend itself in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. Although the ultimate disposition of these proceedings is not presently determinable, management believes, after consultation with its legal counsel, that the likelihood is remote that material costs will be incurred in excess of accruals already recognized and would not have a significant impact on the Unconsolidated Mines’ financial position or results of operations.


25