NACCO INDUSTRIES INC (NC)

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

OVERVIEW

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading Forward-Looking Statements.

Management's Discussion and Analysis of Financial Condition and Results of Operations include NACCO Industries, Inc.® (NACCO) and its wholly owned subsidiary, NACCO Natural Resources Corporation® (NACCO Natural Resources and with NACCO collectively, the Company, we, our or us). NACCO Natural Resources brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through our robust portfolio of businesses. We operate under three business segments: Coal Mining, North American Mining® (NAMining) and Minerals Management. The Coal Mining segment operates surface coal mines for power generation companies. The NAMining segment is a trusted mining partner for producers of aggregates, activated carbon, lithium and other industrial minerals. The Minerals Management segment, which includes the Catapult Mineral Partners (Catapult) business, acquires and promotes the development of mineral interests. Mitigation Resources of North America® (Mitigation Resources) provides stream and wetland mitigation solutions as well as comprehensive reclamation and restoration construction services. In addition, ReGen Resources is pursuing opportunities to develop new power generation resources.

We have items not directly attributable to a reportable segment that are not included in the reported financial results of the operating segment. These items primarily include administrative costs related to public company reporting requirements, including management and board compensation, and the financial results of Bellaire Corporation (Bellaire), Mitigation Resources, ReGen Resources and other developing businesses. Bellaire manages our long-term liabilities related to former Eastern U.S. underground mining activities.

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

See Item 1. Business beginning on page 1 in this Form 10-K for further discussion of NACCO's subsidiaries. Additional information relating to financial and operating data on a segment basis (including unallocated items) is set forth in Note 15 to the Consolidated Financial Statements contained in this Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us 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, we evaluate our 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.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

Revenue recognition: Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. See Note 3 to the Consolidated Financial Statements in this Form 10-K for further discussion of our revenue recognition.

Long-lived assets: We periodically evaluate long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset or asset group may not be recoverable. Upon identification of indicators of impairment, we evaluate the carrying value of the asset by comparing the estimated future

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

undiscounted cash flows generated from the use of the asset or asset group and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of the long-lived asset or asset group exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in future sales price, operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment. We determined that indicators of impairment existed at MLMC during the fourth quarter of 2023 and, as a result, MLMC's long-lived assets were reviewed for impairment. We assessed the recoverability of the MLMC asset group and determined that the assets were not fully recoverable when compared to the remaining future undiscounted cash flows from these assets. As a result, we estimated the fair value of the asset group which resulted in a non-cash, long-lived asset impairment charge of $65.9 million in 2023.

See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of our impairment analysis.

Income taxes: We file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. 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 the benefit associated with percentage depletion (tax deductions for depletion that may exceed the tax basis in the mineral reserve) and expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities using currently enacted tax rates. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in the structure or tax status.

Our tax assets, liabilities, and tax expense are supported by historical earnings and losses and our best estimates and assumptions of future earnings. We assess whether a valuation allowance should be established against our deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses. When we determine, 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 our financial statements or tax returns, the ultimate resolution of these events could result in adjustments to our financial statements and such adjustments could be material. We believe 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 our results of operations and financial position. Since 2021, we have participated in a voluntary program with the IRS called Compliance Assurance Process (CAP). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most issues prior to the filing of the tax return.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of our income taxes.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

CONSOLIDATED FINANCIAL SUMMARY

Our results of operations were as follows for the years ended December 31:

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

Other expense (income), net

Interest expense increased in 2024 compared with 2023 due to higher average borrowings as well as an increase in interest rates.

Interest income decreased in 2024 compared with 2023 due to lower earnings on reduced cash balances.

Gain on equity securities represents changes in the market price of invested assets reported at fair value. The change during 2024 compared with 2023 was due to fluctuations in the market prices of the exchange-traded equity securities. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of our invested assets reported at fair value.

During 2023, our Board of Directors approved the termination of the Combined Defined Benefit Plan and participants were offered lump-sum distributions as part of the termination process. As a result of the lump-sum distributions, we recognized a non-cash, pension settlement charge of $1.8 million in 2023 on the line Other, net within the accompanying Consolidated Statements of Operations. See Note 14 to the Consolidated Financial Statements in this Form 10-K for further information on the Combined Defined Benefit Plan.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

On December 1, 2022, we transferred our ownership interest in Midwest AgEnergy Group, LLC (MAG) to HLCP Ethanol Holdco, LLC. We received cash payments totaling $3.6 million during 2023 in connection with MAG and recognized the gain on the line Other, net within the accompanying Consolidated Statements of Operations.

Income Taxes

We recorded an income tax benefit of $0.1 million for the year ended December 31, 2024 on income before income tax of $33.6 million, or 0.3%, compared to an income tax benefit of $24.6 million on loss before income tax of $64.2 million, or 38.3%, for the year ended December 31, 2023. The years ended December 31, 2024 and 2023 both included $4.0 million of discrete tax benefits, primarily from the reversal of uncertain tax provisions. Excluding the $4.0 million of discrete tax benefits in each year, the effective income tax rate in 2024 and 2023 was 11.5% and 32.0%, respectively.

The change in the effective income tax rate for 2024 compared to 2023, excluding the impact of the long-lived asset impairment charge and discrete items, is primarily due to an increase in earnings at entities that do not qualify for percentage depletion. The benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where income or loss before income tax is relatively small, the proportional effect of the benefit from percentage depletion on the effective tax rate may be significant. When income tax expense is recorded, the benefit from percentage depletion decreases the effective income tax rate, while the effect is to increase the effective income tax rate when a benefit for income taxes is recorded.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of our income taxes.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except 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:

The $32.2 million unfavorable change in net cash provided by operating activities during 2024 compared with 2023 was primarily due to an unfavorable change in cash provided by working capital, partially offset by an increase in cash provided by net income adjusted for non-cash items. The unfavorable change in working capital was mainly the result of:

•A significant reduction in the Federal income tax receivable during 2023 that did not reoccur in 2024.

•The changes in Inventory during the period as coal inventory increased during 2024 compared with a decrease in 2023. In addition, there was a larger increase in mining supplies inventory during 2024.

•An increase in Trade accounts receivable during 2024 compared with a decrease during 2023, primarily due to changes in the level and timing of collections as well as the payment terms provided to various customers.

Our non-cash items primarily include Long-lived asset impairment charge, Inventory impairment charges, Depreciation, depletion and amortization, Deferred income taxes, Stock-based compensation and (Gain) loss on sale of assets.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

The change in net cash provided by financing activities was primarily due to higher additions in debt borrowings during 2024 compared with 2023, partially offset by increased share repurchases and debt issuance costs during 2024. See Note 12 to the Consolidated Financial Statements in this Form 10-K for a discussion of our stock repurchase programs.

1031 exchange transactions

During 2024, we had cash proceeds from the sale of assets held by a qualified intermediary to facilitate tax-deferred exchange transactions under Section 1031 of the Internal Revenue Code. In May 2024, we sold land for $7.0 million and recognized a $4.5 million gain in the Minerals Management segment. We structured this transaction in a manner that qualified as a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code and used all of the net proceeds from the sale during the year ended December 31, 2024.

Financing Activities

In September 2024, NACCO Natural Resources amended the secured revolving line of credit (Facility) to increase the revolving credit commitments to $200.0 million and extend the maturity to September 2028. Borrowings outstanding under the Facility were $70.0 million at December 31, 2024. At December 31, 2024, the excess availability under the Facility was $99.1 million, which reflects a reduction for outstanding letters of credit of $30.9 million.

NACCO has not guaranteed any borrowings of NACCO Natural Resources. The Facility allows for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by the Facility) and management fees are the primary sources of cash for NACCO and enable us to pay dividends to stockholders and repurchase shares.

The Facility has performance-based pricing, which sets interest rates based upon NACCO Natural Resources achieving various levels of debt to EBITDA ratios, as defined in the 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, 2024, for base rate and Term Secured Overnight Financing Rate loans were 1.50% and 2.50%, respectively. The 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, 2024. During the years ended December 31, 2024 and December 31, 2023, the average borrowing under the Facility was $27.2 million and $6.2 million, respectively, and the weighted-average annual interest rate was 8.83% and 6.06%, respectively.

The Facility contains restrictive covenants, which require, among other things, NACCO Natural Resources to maintain a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 1.50 to 1.00, or if greater than 1.50 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00. At December 31, 2024, NACCO Natural Resources was in compliance with all financial covenants in the Facility.

The obligations under the Facility are guaranteed by certain of NACCO Natural Resources' direct and indirect, existing and future domestic subsidiaries, and is secured by certain assets of NACCO Natural Resources and the guarantors, subject to customary exceptions and limitations.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

We believe funds available from cash on hand, the Facility and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments arising during the next twelve months and until the expiration of the Facility in September 2028.

See Note 8 and Note 10 to the Consolidated Financial Statements in this Form 10-K for further information on our other financing arrangements and leases, respectively.

Expenditures for property, plant and equipment and mineral interests

Following is a table which summarizes actual and planned expenditures (in millions):

Planned expenditures for 2025 are expected to be approximately $13 million in the Coal Mining segment, $17 million in the NAMining segment, $20 million in the Minerals Management segment and $8 million in growth businesses included in Unallocated Items.

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

Capital Structure

NACCO's consolidated capital structure is presented below:

The increase in other net tangible assets was mainly the result of increases in Property, plant and equipment, Other non-current assets and Inventory during 2024. The increase in Other non-current asset was primarily due to our investment of $15.7 million in Eiger, which holds non-operated working interests in oil and natural gas assets in the Kansas and the Oklahoma portion of the Hugoton basin. The increase in Inventory was mainly due to higher mining supplies and coal inventory.

Contractual Obligations, Contingent Liabilities and Commitments

Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and our decisions to contribute above the minimum regulatory funding requirements. We do not expect to contribute to our pension plan in 2025 and any settlements will be paid out of pension plan assets. NACCO maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds. NACCO also expects to make payments related to our other postretirement plans. See Note 14 to the Consolidated Financial Statements in this Form 10-K for further information on future benefit payments.

NACCO has asset retirement obligations. See Note 7 to the Consolidated Financial Statements in this Form 10-K for further discussion of our asset retirement obligations.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

NACCO has unrecognized tax benefits, including interest and penalties. See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of our income taxes.

We are a party to certain guarantees related to Coyote Creek. We believe that the likelihood of future performance under the guarantees is remote, and no amounts related to these guarantees have been recorded. See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of our guarantees.

We utilize letters of credit to support commitments made in the ordinary course of business. As of December 31, 2024 and 2023, outstanding letters of credit totaled $30.9 million and $34.9 million, respectively.

ENVIRONMENTAL MATTERS

We 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, we closely monitor proposed legislation and regulation concerning SMCRA, CAA, ACE, CWA, RCRA, CERCLA and other regulatory actions.

Compliance with these increasingly stringent regulations could result in higher expenditures for both capital improvements and operating costs. The election of Donald Trump, paired with Republican control of Congress, is likely to have a significant and favorable impact on the regulatory environment, particularly for fossil fuels. President Trump issued an Executive Order on January 20, 2025, "Unleashing American Energy," directing all federal executive agency heads to review all agency actions implicating energy reliability and affordability or potentially burdening the development of domestic energy resources. It is not yet clear how existing regulations affecting existing fossil fuel assets will be reconsidered or repealed. Our policies stress environmental responsibility and compliance with these regulations. See Item 1 and Item 1A. in Part I of this Form 10-K for further discussion of these matters.

SEGMENT RESULTS

COAL MINING SEGMENT

FINANCIAL REVIEW

See Item 2. Properties on page 29 in this Form 10-K for discussion of our mineral resources and mineral reserves.

Tons of coal delivered by the Coal Mining segment were as follows for the years ended December 31:

The results of operations for the Coal Mining segment were as follows for the years ended December 31:

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of our unconsolidated subsidiaries, including summarized financial information.

2024 Compared with 2023

Revenues decreased 19.7% in 2024 compared with 2023 due to a reduction in customer requirements at MLMC as a result of a boiler issue at the customer's Red Hills Power Plant.

The following table identifies the components of change in Operating profit (loss) for 2024 compared with 2023:

Operating profit (loss) changed favorably by $95.7 million in 2024 compared with 2023. The change in Operating profit (loss) was primarily due to:

•The absence of a long-lived asset impairment charge;

•Business interruption insurance recoveries for the boiler issue at the Red Hills Power Plant;

•A decrease in gross loss, excluding inventory impairment charges;

•An increase in the earnings of unconsolidated operations; and

•A decrease in the amortization of intangibles.

During 2023, MLMC received notice from its customer related to a boiler issue at the Red Hills Power Plant that began on December 15, 2023. We assessed for impairment and recorded a non-cash, long-lived asset impairment charge of $65.9 million in 2023. The $65.9 million relates exclusively to MLMC; however, $60.8 million and $5.1 million were recorded on the Coal Mining segment and the Minerals Management segment, respectively, as certain MLMC land assets were recorded within the Minerals Management segment. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further information on the 2023 impairment. While this issue has been resolved, it resulted in a reduction in customer demand which had a significant impact on our 2024 results of operations. We recognized income of $13.6 million in 2024 related to business interruption insurance recoveries that partially offset losses as a result of the boiler outage.

The reduction in revenues at MLMC was offset by lower cost of goods sold, resulting in a decrease in the gross loss during 2024 compared with 2023. The reduction in cost of goods sold was primarily attributable to changes in the level of coal inventory and costs capitalized into inventory as the decrease in demand resulted in an increase in the coal stockpile during 2024. In addition, the gross loss in 2024 and 2023 included $9.6 million and $7.5 million of inventory impairment charges, respectively, to write down MLMC's coal inventory to its net realizable value.

The increase in earnings of unconsolidated operations was primarily due to improved results at Falkirk, primarily due to a higher per ton management fee beginning in June 2024 when temporary price concessions ended and an increase in customer demand. Improved results at Coteau also contributed to the increase in earnings of unconsolidated operations.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

NORTH AMERICAN MINING (NAMining) SEGMENT

FINANCIAL REVIEW

Aggregate tons delivered by the NAMining segment were as follows for the years ended December 31:

The results of operations for the NAMining segment were as follows for the years ended December 31:

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of our unconsolidated subsidiaries, including summarized financial information.

2024 Compared with 2023

Revenues excluding reimbursable costs increased 32.6% in 2024 compared with 2023, mainly due to favorable pricing and delivery mix at the consolidated limestone quarries and an increase in the scope of work at Sawtooth. Reimbursable costs, which have an offsetting amount in cost of sales and have no impact on gross profit, also increased during 2024.

The following table identifies the components of change in Operating profit for 2024 compared with 2023.

Operating profit increased $2.4 million in 2024 compared with 2023 primarily due to an increase in gross profit and a favorable change on the sale of assets. The improvement in gross profit was mainly the result of favorable pricing and improved margins at the consolidated limestone quarries and an increase in the scope of work at Sawtooth.

Selling, general and administrative expenses include a $0.9 million charge to establish an allowance against a receivable from one of NAMining's customers during 2024, which was offset by a reduction in outside services.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

Oil and natural gas prices have been historically volatile and may continue to be volatile in the future. The table below shows the average price as reported by the United States Energy Information Administration for the twelve months ended December 31:

These indicated prices do not necessarily reflect the contract terms for our sales. As an owner of royalty and mineral interests, our access to information concerning activity and operations of our royalty and mineral interests is limited. We do not have information that would be available to a company with working interests in oil and natural gas operations because detailed information is not generally available to owners of royalty and mineral interests.

The results of operations for the Minerals Management segment were as follows for the years ended December 31:

Revenues increased in 2024 compared with 2023 primarily due to an increase in oil and natural gas revenues as a result of increased oil production volumes related to an acquisition that closed during the fourth quarter of 2023. These improvements were partially offset by a reduction in other revenues, primarily coal royalty income. In addition, revenues during 2023 included $1.4 million of settlement income.

Operating profit increased $9.5 million in 2024 compared with 2023, primarily due to the absence of a $5.1 million long-lived asset impairment charge recognized during 2023 and a $4.5 million gain on the sale of land related to legacy operations recognized during 2024. The increase in revenue was offset by an increase in cost of sales, primarily related to higher depletion expense due to increased production volumes. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further information on the 2023 impairment.

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the years ended December 31:

2024 Compared with 2023

The operating loss increased during 2024 compared with 2023 primarily due to higher employee-related costs, partially offset by lower expenses for growth initiatives as certain costs expensed in 2023 were capitalized in 2024.

NACCO Industries, Inc. Outlook

NACCO's businesses provide critical inputs for electricity generation, construction and development, and the production of industrial minerals and chemicals. Increasing demand for electricity, on-shoring and current federal policies are creating favorable macroeconomic trends within these industries. We are confident in our trajectory and business prospects as we enter 2025 and prepare for longer-term growth opportunities. Specifically in 2025, we expect to generate a modest year-over-year increase in consolidated operating profit.

In 2025, the Coal Mining segment anticipates solid customer demand, with deliveries expected to increase modestly from 2024. We anticipate that evolving policy frameworks may create a more favorable regulatory environment for the fossil fuel industry moving forward. These developments are expected to further support coal as an essential part of the energy mix in the United States for the foreseeable future.

The Coal Mining segment expects to benefit from the expiration of temporary price concessions at Falkirk. In addition, MLMC continues to recover from inefficiencies experienced while its customer's Red Hills Power Plant operated on one of two generation units for more than half of 2024. With the power plant now anticipated to operate at a level consistent with historical averages, coal deliveries are expected to return to more normal levels, resulting in moderate cost efficiencies. However, an anticipated reduction in the 2025 contractually determined per ton sales price compared with 2024 is expected to offset these improvements, resulting in lower results at MLMC. An expected increase in operating expenses will contribute to an overall anticipated modest year-over-year decrease in Coal Mining segment operating profit.

NAMining is expected to generate increasing levels of operating profit over time as the benefits of new and extended contracts add to the profitability of existing contracts. During 2024, NAMining executed three new or amended existing contracts, which are expected to deliver net present value after-tax cash flows of approximately $20 million over contract terms that range from 6 to 20 years. NAMining is expected to deliver further improved results in 2025, predominantly in the second half of the year based on expectations for comparable year-over-year customer demand. NAMining is continuously seeking to enter into new or amended contracts to solidify its position as the foundation for NACCO's mining-related growth initiatives.

NAMining's subsidiary, Sawtooth, is the exclusive provider of comprehensive mining services at Thacker Pass, which is owned by Lithium Americas Corp. (TSX: LAC) (NYSE: LAC). Sawtooth will supply all of the lithium-bearing ore requirements for Thacker Pass, which is currently under construction. We expect to continue to recognize moderate income at Sawtooth while it assists with certain construction services. Once the mine is operating, Sawtooth will be reimbursed for costs of mining, capital expenditures and mine closure and will recognize a contractually agreed upon production fee. In addition to providing comprehensive mining services, Sawtooth will receive a fee to transport clay tailings once lithium production commences. Phase 1 lithium production is estimated to begin in late 2027.

The Minerals Management segment, through its Catapult business, has constructed a high-quality, diversified portfolio of oil and gas mineral and royalty interests in the United States. In the fourth quarter of 2024, Minerals Management invested $15.7 million in a company that holds non-operated working interests in oil and natural gas assets in the Kansas and Oklahoma portions of the Hugoton basin. While this investment, accounted for under the equity method, is expected to be accretive to earnings, 2025 operating profit is expected to be comparable to 2024. Lower first-half earnings are expected to be offset by an

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Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

improvement in the second half given expected trends in oil and natural gas prices and projected volumes.

Minerals Management continues to build its portfolio with a mix of producing wells, near-term development opportunities and undeveloped acreage. We believe our data-driven approach to acquisitions and our long-term perspective provides a competitive advantage as undeveloped assets provide additional upside potential over the life of the reserve. While we continue to budget up to $20 million annually to expand our portfolio and provide long-term stable cash flow generation, our business model allows flexibility regarding the cadence and type of investment based on available opportunities that we believe will create long-term value and generate increasing profitability.

Mitigation Resources provides stream and wetland mitigation solutions as well as comprehensive reclamation and restoration construction services. This business is an avenue for growth and diversification in an area where NACCO has built a strong reputation based on its substantial knowledge and expertise. Mitigation Resources continued to expand during 2024, and now has 11 mitigation banks and other mitigation projects located in Alabama, Florida, Georgia, Mississippi, Pennsylvania, Tennessee and Texas.

Mitigation Resources also provides ecological restoration services for abandoned surface mines and plans to pursue other environmental restoration projects. It was named a designated provider of abandoned mine land restoration by the State of Texas, and in January 2025 secured a restoration project in Kentucky that is expected to be accretive to earnings beginning in 2026.

Mitigation Resources is expected to achieve full-year profitability beginning in 2025 based on current expectations for the timing of permit approvals and mitigation credit releases, as well as income generated from service-related projects. Mitigation Resources is expected to increase profitability over time, and provide a return on capital employed in the mid-teens as the business matures.

We established ReGen Resources in 2023 to address the rapidly increasing demand for additional power generation sources in the United States through development of energy and energy-related projects that utilize multiple-generation technologies, such as solar combined with gas-fired generation, primarily on reclaimed mining properties. These projects could be developed by ReGen Resources directly or through joint ventures that include partners with expertise in energy development projects. Current projects include solar arrays, solar-gas hybrid projects and carbon capture projects on reclaimed mine land in Mississippi and Texas. Additional projects in other states are in early-stage review.

We are taking actions to terminate our defined benefit pension plan in 2025, which will eliminate future volatility from changes in the pension obligation. Once complete, obligations under the terminated plan will be transferred to a third-party insurance provider. Surplus assets are expected to be utilized to fund a qualified replacement plan, reducing future cash funding requirements. Although the plan is currently over funded, a significant non-cash settlement charge is anticipated upon termination, which is expected to lead to a substantial year-over-year decrease in net income and EBITDA compared with 2024.

Consolidated capital expenditures are expected to total approximately $58 million in 2025, which includes approximately $13 million for Coal Mining, $17 million for NAMining, $20 million for Minerals Management and $8 million predominantly for ReGen Resources and other growth businesses. We expect significant annual cash flow generation beginning in 2025, based on the current business plan.

We believe that each of our businesses have competitive advantages that provide value to customers and create long-term value for stockholders. We are pursuing growth and diversification by strategically leveraging our core natural resources management skills to build a robust portfolio of affiliated businesses. Opportunities for growth remain strong and are increasing amid recent successes and a significant positive change in the regulatory environment, particularly for fossil fuels. Acquisitions of additional mineral interests and improvements in the outlook for Coal Mining segment customers, as well as new contracts at Mitigation Resources and NAMining should be accretive to the longer-term outlook.

We are committed to maintaining a conservative capital structure as we continue to grow and diversify, while avoiding unnecessary risk. We believe strategic diversification will generate cash that can be re-invested to strengthen and expand the businesses or distributed to investors in the form of share repurchases or dividends. We continue to maintain the highest levels

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

of customer service and operational excellence with an unwavering focus on safety and environmental stewardship.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 to the Consolidated Financial Statements in this Form 10-K for a description of recently issued accounting standards including actual and expected dates of adoption and effects to our Consolidated Financial Statements.

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. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) changes to or termination of customer or other third-party contracts, or a customer or other third party default under a contract, (2) any customer's premature facility closure or extended project development delay, (3) regulatory actions, including the United States EPA's rules finalized in 2024 relating to mercury and greenhouse gas emissions for coal-fired power plants, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (4) a significant reduction in purchases by the Company's customers, including as a result of changes in coal consumption patterns of U.S. electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (5) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas, natural gas liquids and oil as a result of factors such as OPEC and/or government actions, geopolitical developments, economic conditions and regulatory changes, as well as supply and demand dynamics, (6) changes in development plans by third-party lessees of the Company's mineral interests, (7) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives relating to hydraulic fracturing and U.S. export of natural gas; and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (8) failure to obtain adequate insurance coverages at reasonable rates, (9) supply chain disruptions, including price increases and shortages of parts and materials, (10) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (11) impairment charges, (12) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (13) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (14) weather or equipment problems that could affect deliveries to customers, (15) changes in the costs to reclaim mining areas, (16) costs to pursue and develop new mining, mitigation, oil and gas and solar development opportunities and other value-added service opportunities, (17) delays or reductions in coal or aggregates deliveries, (18) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (19) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment, and (20) the ability to attract, retain, and replace workforce and administrative employees.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

OVERVIEW

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements."

Management's Discussion and Analysis of Financial Condition and Results of Operations include NACCO Industries, Inc.® (“NACCO” or the “Company”). NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources® businesses. The Company operates under three business segments: Coal Mining, North American Mining® ("NAMining") and Minerals Management. The Coal Mining segment operates surface coal mines for power generation companies. The NAMining segment is a trusted mining partner for producers of aggregates, activated carbon, lithium and other industrial minerals. The Minerals Management segment, which includes the Catapult Mineral Partners (“Catapult”) business, acquires and promotes the development of mineral interests. Mitigation Resources of North America® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

The Company has items not directly attributable to a reportable segment that are not included in the reported financial results of the operating segment. These items primarily include administrative costs related to public company reporting requirements, including management and board compensation, and the financial results of Bellaire Corporation ("Bellaire"), Mitigation Resources and other developing businesses. Bellaire manages the Company’s long-term liabilities related to former Eastern U.S. underground mining activities.

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

See “Item 1. Business" beginning on page 1 in this Form 10-K for further discussion of NACCO's subsidiaries. Additional information relating to financial and operating data on a segment basis (including unallocated items) is set forth in Note 15 to the Consolidated Financial Statements contained in this Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition: Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers." See Note 3 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's revenue recognition.

Long-lived assets: The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset or asset group may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset or asset group and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount

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

that the carrying value of the long-lived asset or asset group exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in future sales price, operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment. A reduction in customer demand at MLMC, including reductions related to reduced mechanical availability of the customer’s power plant, could adversely affect the Company's operating results. The costs of mining operations are not reimbursed by MLMC's customer. As such, increased costs at MLMC could materially reduce the Company's profitability. The Company determined that indicators of impairment existed at MLMC during the fourth quarter of 2023 and, as a result, MLMC's long-lived assets were reviewed for impairment. The Company assessed the recoverability of the MLMC asset group 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 which resulted in a non-cash, long-lived asset impairment charge of $65.9 million in 2023.

See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's impairment analysis.

Income taxes: The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities using currently enacted tax rates. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in the structure or tax status.

The Company's tax assets, liabilities, and tax expense are supported by historical earnings and losses and the Company's best estimates and assumptions of future earnings. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.

Since significant judgment is required to assess the future tax consequences of events that have been recognized in the Company's financial statements or tax returns, the ultimate resolution of these events could result in adjustments to the Company's financial statements and such adjustments could be material. The Company believes the current assumptions, judgments and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. If the actual outcome of future tax consequences differs from these estimates and assumptions, due to changes or future events, the resulting change to the provision for income taxes could have a material impact on the Company's results of operations and financial position. Since 2021, the Company has participated in a voluntary program with the IRS called Compliance Assurance Process (“CAP”). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most issues prior to the filing of the tax return.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

CONSOLIDATED FINANCIAL SUMMARY

The results of operations for NACCO were as follows for the years ended December 31:

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

Other income, net

During 2023, the Board of Directors of the Company approved the termination of the Combined Defined Benefit Plan for NACCO and its subsidiaries (the “Combined Plan”) and Combined Plan participants were offered lump-sum distributions as part of the termination process. As a result of the lump-sum distributions, the Company recognized a non-cash, pension settlement charge of $1.8 million on the line "Other, net" within the accompanying Consolidated Statements of Operations. The $1.8 million charge represents a pro rata portion of the unrecognized net loss recorded in Accumulated other comprehensive loss. See Note 14 to the Consolidated Financial Statements in this Form 10-K for further information on the Combined Plan.

During 2022, GRE transferred ownership of an office building with an estimated fair value of $4.1 million and conveyed membership units in Midwest AgEnergy Group, LLC (“MAG”), a North Dakota-based ethanol business, with an estimated fair value of $12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE. As a result, the Company recognized $16.9 million on the "Other contract termination settlements" line within the accompanying Consolidated Statements of Operations.

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

Prior to receiving the membership units from GRE, the Company held a $5.0 million investment in MAG. Subsequent to the receipt of the additional membership units, the Company began to account for the investment under the equity method of accounting. During the third quarter of 2022, the Company recorded $2.2 million, which represented its share of MAG's earnings on the "Other, net" line within the accompanying Consolidated Statements of Operations.

On December 1, 2022, HLCP Ethanol Holdco, LLC (“HLCP”) completed its acquisition of MAG. Upon closing of the transaction, NACCO transferred its ownership interest in MAG to HLCP and received a cash payment of $18.6 million and recognized a $1.3 million loss during the fourth quarter of 2022 on the line "Other, net" within the accompanying Consolidated Statements of Operations.

The Company received additional cash payments totaling $3.6 million during 2023 in connection with MAG's post-closing purchase price adjustment and the release of amounts held in escrow. The Company recognized the $3.6 million gain on the line "Other, net" within the accompanying Consolidated Statements of Operations.

Interest income increased $4.6 million primarily due to higher interest rates and a higher average invested cash balance during 2023 compared with 2022.

(Gain) loss on equity securities represents changes in the market price of invested assets reported at fair value. The change during 2023 compared with 2022 was due to fluctuations in the market prices of the exchange-traded equity securities. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's invested assets reported at fair value.

Income Taxes

Income tax benefit of $24.6 million for the year ended December 31, 2023 includes $4.0 million of discrete tax benefits, primarily the reversal of uncertain tax positions and the impact of U.S. federal provision to return adjustments. Excluding the $4.0 million of discrete tax benefits, the effective income tax rate in 2023 was 32.0%.

Income tax expense of $13.6 million for the year ended December 31, 2022 included $1.5 million of discrete tax benefits, primarily from the reversal of uncertain tax positions as a result of the conclusion of the IRS examination of the Company’s 2013, 2014, 2015 and 2016 federal income tax returns. Excluding the $1.5 million of discrete tax benefits, the effective income tax rate in 2022 was 17.1%.

The change in the effective income tax rate for 2023 compared to 2022, excluding the impact of the long-lived asset impairment charge and discrete items, is primarily due to a decrease in earnings at entities that qualify for percentage depletion. The benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

(Tabular Amounts in Thousands, Except 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:

The $13.2 million change in net cash provided by operating activities during 2023 compared with 2022 was primarily due to a decrease in cash provided by net income adjusted for non-cash items, partially offset by a favorable change in cash provided by working capital. The Company’s non-cash items primarily include Long-lived asset impairment charge, Other contract termination settlements, Inventory impairment charge, Deferred income taxes, Depreciation, depletion and amortization, Stock-based compensation, and Loss (gain) on sale of assets.

The favorable change in working capital was mainly the result of a decrease in Trade accounts receivable during 2023 compared with a significant increase during 2022. In addition, a significant reduction in the Federal income tax receivable during 2023 compared with an increase during 2022 also contributed to the favorable change in working capital.

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

The change in net cash provided by (used for) financing activities was primarily due to debt borrowing during 2023 compared with debt repayments during 2022, partially offset by share repurchases during 2023. On November 7, 2023, the Company's Board of Directors approved a stock purchase program providing for the purchase of up to $20.0 million of the Company’s outstanding Class A common stock through December 31, 2025. See Note 12 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's stock repurchase programs.

Financing Activities

Financing arrangements are obtained and maintained at the subsidiary level. The Company has a secured revolving line of credit of up to $150.0 million (the “Facility”) that expires in November 2025. Borrowings outstanding under the Facility were $10.0 million at December 31, 2023. At December 31, 2023, the excess availability under the Facility was $105.1 million, which reflects a reduction for outstanding letters of credit of $34.9 million.

NACCO has not guaranteed any borrowings of its subsidiaries. Dividends (to the extent permitted by the Facility) and management fees paid by NACCO subsidiaries are the primary sources of cash for NACCO and enable the Company to pay dividends to stockholders.

The Facility has performance-based pricing, which sets interest rates based upon achieving various levels of debt to EBITDA ratios, as defined in the 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, 2023, for base rate and Secured Overnight Financing Rate loans were 1.23% and 2.23%, respectively. The Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.34% on the unused commitment at December 31, 2023. During the year ended December 31, 2023, the average borrowing under the Facility was $6.2 million. The weighted-average annual interest rate, including the floating rate margin, was 6.06% and 2.54% at December 31, 2023 and December 31, 2022, respectively.

The Facility contains restrictive covenants, which require, among other things, maintaining a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 1.50 to 1.00, or if greater than 1.50 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the Facility, of $15.0 million. At December 31, 2023, the Company was in compliance with all financial covenants in the Facility.

The obligations under the Facility are guaranteed by certain direct and indirect, existing and future domestic subsidiaries, and is secured by certain assets and the guarantors, subject to customary exceptions and limitations.

The Company believes funds available from cash on hand, the 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 Facility in November 2025.

See Note 8 and Note 10 to the Consolidated Financial Statements in this Form 10-K for further information on the Company's other financing arrangements and leases, respectively.

Expenditures for property, plant and equipment and mineral interests

Following is a table which summarizes actual and planned expenditures (in millions):

Planned expenditures for 2024 are expected to be approximately $32 million in the NAMining segment, $20 million in the Minerals Management segment, $13 million in the Coal Mining segment and $4 million in Unallocated Items.

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

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

Capital Structure

NACCO's consolidated capital structure is presented below:

The $20.9 million increase in other net tangible assets was primarily due to a favorable change in Deferred income taxes.

During the fourth quarter of 2023, intangible assets, net, decreased by $22.0 million, primarily because the Company recorded a non-cash, long-lived asset impairment charge. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's impairment analysis.

Contractual Obligations, Contingent Liabilities and Commitments

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. The Company does not expect to contribute to its pension plan in 2024 and any settlements will be paid out of pension plan assets. NACCO maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds and expects to pay benefits of approximately $0.4 million per year from 2024 through 2033. Benefit payments beyond that time cannot currently be estimated. NACCO also expects to make payments related to its other postretirement plans of approximately $0.2 million per year from 2024 through 2033. Benefit payments beyond that time cannot currently be estimated.

NACCO has asset retirement obligations. See Note 7 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's asset retirement obligations.

NACCO has unrecognized tax benefits, including interest and penalties. See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

The Company is a party to certain guarantees related to Coyote Creek. The Company believes that the likelihood of future performance under the guarantees is remote, and no amounts related to these guarantees have been recorded. See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's guarantees.

The Company utilizes letters of credit to support commitments made in the ordinary course of business. As of December 31, 2023 and 2022, outstanding letters of credit totaled $34.9 million and $33.7 million, respectively.

ENVIRONMENTAL MATTERS

The Company is affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the U.S. Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition, the Company closely monitors proposed legislation and regulation concerning SMCRA, CAA, ACE, CWA, RCRA, CERCLA and other regulatory actions.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

Compliance with these increasingly stringent regulations could result in higher expenditures for both capital improvements and operating costs. The Company’s policies stress environmental responsibility and compliance with these regulations. See Item 1 in Part I of this Form 10-K for further discussion of these matters.

Certain states have enacted, and others are considering enacting, mandatory clean energy standards requiring utilities to meet certain thresholds of renewable energy sources and/or carbon-free energy supply. The current presidential administration has made climate change a focus, including consideration for legislation on clean energy standards and GHG emission, and the Company expects that to continue. The Company believes the move to require utilities to generate a greater portion of energy from renewable energy sources could create imbalances in the existing electric grid if fossil-fuel power plants are retired faster than renewable energy sources are developed resulting in electrical grid disruptions and outages. The Company will continue to monitor the progress of these initiatives and assess the potential impacts they may have on its financial condition, results of operations and disclosures.

SEGMENT RESULTS

COAL MINING SEGMENT

FINANCIAL REVIEW

See “Item 2. Properties" on page 31 in this Form 10-K for discussion of the Company's mineral resources and mineral reserves.

Tons of coal delivered by the Coal Mining segment were as follows for the years ended December 31:

The results of operations for the Coal Mining segment were as follows for the years ended December 31:

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

2023 Compared with 2022

Revenues decreased 10.3% in 2023 compared with 2022 primarily due to a reduction in customer requirements at MLMC.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

The following table identifies the components of change in operating profit for 2023 compared with 2022:

Operating (loss) profit changed unfavorably by $109.7 million in 2023 compared with 2022. The change in operating profit was primarily due to:

•A long-lived asset impairment charge;

•A decrease in gross profit;

•The non-recurrence of $14.0 million recognized in 2022 related to the contract termination settlement with GRE; and

•A decrease in the earnings of unconsolidated operations.

On December 18, 2023, MLMC received a force majeure event notice from its customer related to an issue that began on December 15, 2023 and impacted one of two boilers at the Red Hills Power Plant. The notice did not provide a timeline for resolution of the issue. The Company determined the anticipated reduction in customer demand caused by this issue was an indicator of potential impairment. The Company recorded a non-cash, long-lived asset impairment charge of $65.9 million in 2023. The $65.9 million relates exclusively to MLMC; however, $60.8 million and $5.1 million were recorded on the Coal Mining segment and the Minerals Management segment, respectively, as certain MLMC land assets were recorded within the Minerals Management segment. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further information on the long-lived asset impairment charge.

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

ton delivered at MLMC is due to costs associated with establishing operations in a new mine area and a reduction in the number of tons severed. The reduction in severed tons was due to adverse mining conditions during 2023, as well as operational inefficiencies related to final mining activities at the existing mine area. Fewer tons severed caused a decrease in tons held in inventory since more tons were delivered than produced during 2023. This resulted in an increase in the cost per ton sold and $7.5 million of inventory impairment charges to write down coal inventory to its net realizable value.

The decrease in the earnings of unconsolidated operations was primarily due to a reduction in customer requirements at Coteau and Falkirk. A reduction in the per ton management fee at Falkirk, effective May 2022 through May 2024, to support the transition of the Coal Creek Station Power Plant to Rainbow Energy also contributed to the 2023 decrease in earnings.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

Aggregate tons delivered by the NAMining segment were as follows for the years ended December 31:

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

The results of operations for the NAMining segment were as follows for the years ended December 31:

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

2023 Compared with 2022

Total revenues increased 5.7% in 2023 compared with 2022 primarily due to:

•An increase in reimbursable costs at Sawtooth, which have an offsetting amount in cost of sales and have no impact on operating profit;

•An increase in customer requirements and tons delivered at the consolidated quarries; and

•Higher dragline part sales.

These improvements were partially offset by a reduction in mine reclamation revenue at Caddo Creek.

The following table identifies the components of change in operating profit for 2023 compared with 2022.

Operating profit increased $1.1 million in 2023 compared with 2022 primarily due to the absence of a voluntary retirement program charge, as well as increases in the earnings of unconsolidated operations and gross profit.

During 2022, the Company implemented a voluntary retirement program for employees who met certain age and service requirements to reduce overall headcount. As a result of this program, operating profit in 2022 included a charge of $0.8 million related to one-time termination benefits.

The increases in the earnings of the unconsolidated operations and gross profit were primarily due to higher earnings at the limestone quarries. An increase in dragline part sales and higher earnings at Sawtooth also contributed to the increase in gross profit. These improvements were largely offset by the absence of earnings associated with Caddo Creek reclamation activities.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

The results of operations for the Minerals Management segment were as follows for the years ended December 31:

During 2023, the oil and natural gas industry experienced a decline in commodity prices compared with 2022. Oil and natural gas prices have been historically volatile and may continue to be volatile in the future. The table below demonstrates such volatility with the average price as reported by the United States Energy Information Administration for the twelve months ended December 31:

Revenues and operating profit decreased in 2023 compared with 2022 primarily due to substantially lower natural gas and oil prices, as well as lower settlement income. The 2023 and 2022 periods included settlement income of $1.4 million and $2.1 million, respectively. Settlement income relates to the Company’s ownership interest in certain mineral rights.

The Minerals Management segment recorded a non-cash, long-lived asset impairment charge of $5.1 million during 2023 as certain MLMC land assets were recorded within the Minerals Management segment. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further information on the impairment analysis.

The Company regularly performs reviews of potential future development projects and identified certain legacy coal assets

where future development is unlikely. The long-lived assets, which included land, prepaid royalties and capitalized leasehold

costs, were written off in 2022 and resulted in non-cash asset impairment charges of $3.9 million.

In addition, operating profit in 2023 decreased due to a $2.4 million gain on the sale of land related to legacy operations recognized during 2022.

An increase in selling, general and administrative expenses, mainly due to higher employee-related costs, also contributed to the decrease in operating profit.

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

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the years ended December 31:

2023 Compared with 2022

The operating loss decreased during 2023 compared with 2022 primarily due to higher earnings at Mitigation Resources and lower employee-related costs. These favorable items were partially offset by increased spending on growth initiatives.

NACCO Industries, Inc. Outlook

Coal Mining Outlook

In 2024, the Company expects coal deliveries to increase modestly from 2023 levels. Higher deliveries at Coteau and Falkirk are expected to be partly offset by the unfavorable effects of the force majeure event at MLMC and the power plant retirement that led to the March 31, 2023 cessation of coal deliveries from the Company's Sabine Mine.

Strong operating profit compared with a significant 2023 loss and substantially higher Segment Adjusted EBITDA are expected in 2024. These anticipated increases are primarily the result of an improvement in results at MLMC and higher earnings at Falkirk and Coteau.

MLMC expects to incur a loss in 2024, albeit significantly less than in 2023, as a result of the lower tons expected to be delivered in 2024. While total production costs at MLMC are anticipated to decline substantially from 2023 levels, they are expected to remain above historical levels throughout 2024 until deliveries return to normal and a pit extension in the new mine area is completed. Lower depreciation and amortization expense as a result of the lower depreciable value of MLMC's assets after the impairment is expected to contribute to the improved results. An extended delay in repairs to the Red Hills Power Plant could significantly affect the Company's 2024 outlook.

An increase in 2024 earnings at the unconsolidated coal mining operations is driven primarily by an expectation for increased customer requirements at Coteau and Falkirk, as well as a higher per ton management fee at Falkirk beginning in June 2024 when temporary price concessions end.

Operating profit is expected to be higher in the second half of 2024 compared with the first half due to anticipated improvements at MLMC, increased demand at the unconsolidated coal mining operations and the end of the Falkirk price concessions in June 2024.

Capital expenditures are expected to be approximately $12.5 million in 2024.

The Company's contract structure at each of its coal mining operations eliminates exposure to spot coal market price fluctuations. However, fluctuations in natural gas prices, weather and the availability of renewable power generation, particularly wind, can contribute to changes in power plant dispatch and customer demand for coal. Changes to customer power plant dispatch would affect the Company’s 2024 outlook, as well as outlook over the longer term.

NAMining Outlook

In October 2023, NAMining executed a 15-year contract to mine phosphate at a quarry in central Florida. Production is expected to commence in the first half of 2024 once relocation of a dragline is complete. The business also amended and extended existing limestone contracts with two customers that contain mutually advantageous contract terms and expanded the scope of work with another customer. As a result of the impact of these new and modified contracts, as well as improvements at existing operations, NAMining expects consecutive quarterly growth in operating profit and Segment Adjusted EBITDA in 2024, leading to significantly improved full-year results over 2023.

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

Sawtooth has an exclusive agreement to provide mining design, consulting and, once mining commences, will be the exclusive contract miner for the Thacker Pass lithium project in northern Nevada. Thacker Pass is owned by Lithium Americas Corp. (TSX: LAC) (NYSE: LAC). Lithium Americas controls the lithium reserves at Thacker Pass. In March 2023, Lithium Americas commenced construction at Thacker Pass. With construction underway, Sawtooth began acquiring mining equipment totaling $23.3 million in 2023. These capital expenditures will be reimbursed by Lithium Americas over a five-year period, Sawtooth will recognize the associated revenue over the estimated useful life of the asset. In addition, during the construction period, Sawtooth will be reimbursed for all costs of construction and will recognize a contractually agreed upon construction fee. The Company expects to continue to recognize moderate income prior to the commencement of Phase 1 lithium production.

In 2024, capital expenditures are expected to be approximately $32 million, primarily for the acquisition of dragline parts and other equipment to support existing contracts as well as the new and modified contracts previously discussed.

Minerals Management Outlook

The Minerals Management segment derives income primarily from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas, oil, natural gas liquids and coal, extracted primarily by third parties. Changing prices of natural gas and oil could have a significant impact on Minerals Management’s operating profit.

In December 2023, Minerals Management completed an approximately $37 million acquisition of mineral interests within the Midland Basin, the eastern sub-basin of the oil-rich Permian Basin. The acquisition includes 43.4 thousand gross acres and 2.5 thousand net royalty acres. This acquisition offers an attractive investment profile and aligns with the Company's strategy to establish a diversified portfolio of mineral and royalty interests. Management believes this acquisition will be accretive to 2024 earnings and provides opportunities for longer-term growth.

In 2024, operating profit and Segment Adjusted EBITDA are expected to decrease moderately compared with the prior year, excluding the 2023 impairment charge stemming from issues at the power plant served by MLMC. The forecasted reduction in profitability is primarily driven by current market expectations for natural gas and oil prices and modest expectations for development of additional new wells by third-party lessees. Lower operating expenses are expected to partially offset the anticipated profit decline.

The Company's forecast is based on current market assumptions for natural gas and oil market prices, as well as development and production assumptions on currently owned reserves. Commodity prices are inherently volatile. Changes may be abrupt in response to factors such as OPEC and/or government actions, geopolitical developments, economic conditions and regulatory changes, as well as supply and demand dynamics. Any change in natural gas and oil prices from current expectations will result in adjustments to the Company's outlook. The Company is closely monitoring the Russia/Ukraine and Israel/Hamas conflicts and their potential impact on OPEC countries and international oil and gas production and demand. Current merger and acquisition activity within the oil and gas exploration and production industry is also a focus as the Company works to understand its potential impact on development plans by third-party lessees.

As an owner of royalty and mineral interests, the Company’s access to information concerning activity and operations with respect to its interests is limited. The Company's expectations are based on the best information currently available and could vary positively or negatively as a result of adjustments made by operators, additional leasing and development and/or changes to commodity prices. Development of additional wells on existing interests in excess of current expectations, or acquisitions of additional interests, could be accretive to future results.

In 2024, Minerals Management is targeting additional investments of up to $20 million. Future investments are expected to be accretive, but each investment's contribution to near-term earnings is dependent on the details of that investment, including the size and type of interests acquired and the stage and timing of mineral development.

Mitigation Resources

Mitigation Resources continues to build on the substantial foundation it has established over the past several years. Mitigation Resources currently has nine mitigation banks and four permittee-responsible mitigation projects located in Tennessee, Mississippi, Alabama and Texas. In addition, Mitigation Resources is providing ecological restoration services for abandoned surface mines, as well as pursuing additional environmental restoration projects. It was named a designated provider of

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

abandoned mine land restoration by the State of Texas. Mitigation Resources anticipates expanding its business in 2024, with a focus on generating a modest operating profit by 2025 and achieving sustainable profitability in future years.

Consolidated Outlook

Overall, the Company expects to generate net income in 2024 compared with the substantial 2023 consolidated net loss. Adjusted EBITDA is also expected to increase significantly over 2023. These improvements are primarily due to anticipated increased profitability at the Coal Mining segment from improved results at MLMC, Falkirk and Coteau. Growth at NAMining is also expected to contribute to the higher 2024 results. Additional contracts for NAMining or Mitigation Resources, or the acquisition of additional mineral interests at Minerals Management could be accretive to the current forecast.

Consolidated capital expenditures are expected to total approximately $69 million in 2024. In 2024, cash flow before financing activities is expected to be a moderate use of cash.

Long-Term Growth and Diversification Outlook

Management continues to view the long-term business outlook for NACCO positively. The Company is pursuing growth and diversification by strategically leveraging its core mining and natural resources management skills to build a strong portfolio of affiliated businesses. Management continues to be optimistic about the long-term outlook. In the Minerals Management segment, as well as in the Company's Mitigation Resources business, opportunities for growth remain strong. Acquisitions of additional mineral interests, an improvement in the outlook for the Company's largest Coal Mining segment customers, and securing contracts for Mitigation Resources and new NAMining projects should be accretive to the Company's outlook.

The Minerals Management segment continues to pursue acquisitions of mineral and royalty interests in the United States. Catapult, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas mineral and royalty interests, has developed a strong network to source and secure new acquisitions. The goal is to construct a high-quality diversified portfolio of oil and gas mineral and royalty interests in the United States that delivers near-term cash flow yields and long-term projected growth. The Company believes this business will provide unlevered after-tax returns on invested capital in the mid-teens as this business model matures. This business model has the potential to deliver higher average operating margins over the life of a reserve than traditional oil and gas companies that bear the cost of exploration, production and/or development as these costs are borne entirely by third-party exploration and development companies that lease the minerals.

NAMining is focused on evaluating new business opportunities and driving profitable growth in line with refined strategic objectives. After a pause on business development in early 2023, NAMining has better identified how to enhance operational excellence, where to focus and scale, and how to drive profitable growth. New contracts and contract extensions are central to the business' organic growth strategy, and NAMining intends to be a substantial contributor to operating profit over time.

Mitigation Resources continues to expand its business, which creates and sells stream and wetland mitigation credits, provides services to those engaged in permittee-responsible mitigation and provides other environmental restoration services. This business offers an opportunity for growth and diversification in an industry where the Company has substantial knowledge and expertise and a strong reputation. Mitigation Resources is making strong progress toward its goal of becoming a top ten provider of stream and wetland mitigation services in the southeastern United States. The Company believes that Mitigation Resources can provide solid rates of return on capital employed as this business matures.

The Company also continues to pursue activities which can strengthen the resiliency of its existing coal mining operations. The Company remains focused on managing coal production costs and maximizing efficiencies and operating capacity at mine locations to help customers with management fee contracts be more competitive. These activities benefit both customers and the Company's Coal Mining segment, as fuel cost is a significant driver for power plant dispatch. Increased power plant dispatch results in increased demand for coal by the Coal Mining segment's customers. Fluctuating natural gas prices, weather and availability of renewable energy sources, such as wind and solar, could affect the amount of electricity dispatched from coal-fired power plants. While the Company realizes the coal mining industry faces political and regulatory challenges and demand for coal is projected to decline over the longer-term, the Company believes coal should be an essential part of the energy mix in the United States for the foreseeable future.

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

The Company continues to look for ways to create additional value by utilizing its core mining competencies which include reclamation and permitting. The Company is working to utilize these skills through development of utility-scale solar projects on reclaimed mining properties. Reclaimed mining properties offer large tracts of land that could be well-suited for solar and other energy-related projects. These projects could be developed by the Company itself or through joint ventures that include partners with expertise in energy development projects. In 2023, NACCO formed ReGen Resources to pursue such projects, including the development of a solar farm on reclaimed land at MLMC.

The Company is committed to maintaining a conservative capital structure as it continues to grow and diversify, while avoiding unnecessary risk. Strategic diversification will generate cash that can be re-invested to strengthen and expand the businesses. The Company also continues to maintain the highest levels of customer service and operational excellence with an unwavering focus on safety and environmental stewardship.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 to the Consolidated Financial Statements in this Form 10-K for a description of recently issued accounting standards, if any, including actual and expected dates of adoption and effects to the Company's Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) changes to or termination of customer or other third-party contracts, or a customer or other third party default under a contract, (2) any customer's premature facility closure or extended project development delay, (3) regulatory actions, including the United States EPA's 2023 proposed rules relating to mercury and greenhouse gas emissions for coal-fired power plants, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (4) a significant reduction in purchases by the Company's customers, including as a result of changes in coal consumption patterns of U.S. electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (5) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas, natural gas liquids and oil, (6) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives relating to hydraulic fracturing and U.S. export of natural gas; and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (7) failure to obtain adequate insurance coverages at reasonable rates, (8) supply chain disruptions, including price increases and shortages of parts and materials, (9) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (10) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (11) impairment charges, (12) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (13) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (14) weather or equipment problems that could affect deliveries to customers, (15) changes in the costs to reclaim mining areas, (16) costs to pursue and develop new mining, mitigation, oil and gas and solar development opportunities and other value-added service opportunities, (17) delays or reductions in coal or aggregates deliveries, (18) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (19) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment, and (20) the ability to attract, retain, and replace workforce and administrative employees.

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

OVERVIEW

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements."

Management's Discussion and Analysis of Financial Condition and Results of Operations include NACCO Industries, Inc.® (“NACCO” or the “Company”). NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources businesses. The Company operates under three business segments: Coal Mining, North American Mining ("NAMining") and Minerals Management. The Coal Mining segment operates surface coal mines for power generation companies. The NAMining segment is a trusted mining partner for producers of aggregates, activated carbon, lithium and other industrial minerals. The Minerals Management segment, which includes the Catapult Mineral Partners (“Catapult”) business, acquires and promotes the development of mineral interests. Mitigation Resources of North America® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

The Company has items not directly attributable to a reportable segment that are not included as part of the measurement of segment operating profit, which primarily includes administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources and Bellaire Corporation ("Bellaire"). Bellaire manages the Company’s long-term liabilities related to former Eastern U.S. underground mining activities.

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

retrospectively changed its computation of segment operating profit to reclassify the results of Caddo Creek Resources

Company, LLC (“Caddo Creek”) and Demery Resources Company, LLC ("Demery") from the Coal Mining segment into the

NAMining segment as these operations provide mining solutions for producers of industrial minerals, rather than for power

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

reporting change has no impact on consolidated operating results. All prior period segment information has been reclassified to

conform to the new presentation.

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

See “Item 1. Business" beginning on page 1 in this Form 10-K for further discussion of NACCO's subsidiaries. Additional information relating to financial and operating data on a segment basis (including unallocated items) is set forth in Note 15 to the Consolidated Financial Statements contained in this Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition: Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers." See Note 3 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's revenue recognition.

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

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 regularly performs reviews of potential future development projects and identified certain legacy coal assets

where future development is unlikely. The long-lived assets, which included land, prepaid royalties and capitalized leasehold

costs, were written off in 2022 and resulted in non-cash asset impairment charges of $3.9 million. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's fair value measurements.

At MLMC, the costs of mining operations are not reimbursed by MLMC's customer. As such, increased costs at MLMC or decreased revenues could materially reduce the Company's profitability. Any reduction in customer demand at MLMC, including reductions related to reduced mechanical availability of the customer’s power plant, would adversely affect the Company's operating results and could result in significant impairments. MLMC has approximately $125 million of long-lived assets, including property, plant and equipment and its coal supply agreement intangible asset, which are subject to periodic impairment analysis and review. Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment. Actual future operating results could differ significantly from these estimates, which may result in an impairment charge in a future period, which could have a substantial impact on the Company’s results of operations.

Income taxes: The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities using currently enacted tax rates. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in the structure or tax status.

The Company's tax assets, liabilities, and tax expense are supported by historical earnings and losses and the Company's best estimates and assumptions of future earnings. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.

Since significant judgment is required to assess the future tax consequences of events that have been recognized in the Company's financial statements or tax returns, the ultimate resolution of these events could result in adjustments to the Company's financial statements and such adjustments could be material. The Company believes the current assumptions, judgments and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. If the actual outcome of future tax consequences differs from these estimates and assumptions, due to changes or future events, the resulting change to the provision for income taxes could have a material impact on the Company's results of operations and financial position. Since 2021, the Company has participated in a voluntary program with the IRS called Compliance Assurance Process (“CAP”). The objective of CAP is to contemporaneously work with the IRS to achieve federal tax compliance and resolve all or most issues prior to the filing of the tax return.

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

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

CONSOLIDATED FINANCIAL SUMMARY

The results of operations for NACCO were as follows for the years ended December 31:

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

Other income, net

During the second quarter of 2022, GRE transferred ownership of an office building with an estimated fair value of $4.1 million and conveyed membership units in Midwest AgEnergy Group, LLC (“MAG”), a North Dakota-based ethanol business, with an estimated fair value of $12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE. As a result, the Company recognized $16.9 million on the "Other contract termination settlements" line within the accompanying Consolidated Statements of Operations.

Prior to receiving the membership units from GRE, the Company held a $5.0 million investment in MAG. Subsequent to the receipt of the additional membership units, the Company began to account for the investment under the equity method of

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accounting. During the third quarter of 2022, the Company recorded $2.2 million, which represented its share of MAG's earnings on the "Income from equity method investee" line within the accompanying Consolidated Statements of Operations.

On December 1, 2022, HLCP Ethanol Holdco, LLC (“HLCP”) completed its acquisition of MAG. Upon closing of the transaction, NACCO transferred its ownership interest in MAG to HLCP and received a cash payment of $18.6 million and recognized a $1.3 million loss during the fourth quarter of 2022 on the line "Other, net" within the accompanying Consolidated Statements of Operations.

Interest income increased $1.0 million primarily due to higher interest rates and a higher average invested cash balance during 2022 compared with 2021.

Loss (gain) on equity securities represents changes in the market price of invested assets reported at fair value. The change

during 2022 compared with 2021 was due to fluctuations in the market prices of the exchange-traded equity securities. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's invested assets reported at fair value.

Income Taxes

Income tax expense of $13.6 million for the year ended December 31, 2022 includes $1.5 million of discrete tax benefits, primarily from the reversal of uncertain tax positions as a result of the conclusion of the IRS examination of the Company’s 2013, 2014, 2015 and 2016 federal income tax returns. Excluding the $1.5 million of discrete tax benefits, the effective income tax rate in 2022 was 17.1%.

Income tax expense of $8.7 million for the year ended December 31, 2021 included $1.0 million of discrete tax expense. Excluding the $1.0 million of discrete tax expense, the effective income tax rate in 2021 was 13.5%.

The increase in the effective income tax rate for 2022 compared to 2021, excluding the impact of discrete items, is primarily due to an increase in earnings at entities that do not qualify for percentage depletion. The benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

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(Tabular Amounts in Thousands, Except 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:

The $7.1 million decrease in net cash provided by operating activities was primarily due to a decrease in cash provided by working capital partially offset by an increase in cash provided by net income adjusted for non-cash items. The $17.6 million decrease in net cash provided by working capital was primarily due to a decrease in accounts payable during 2022 compared with an increase in accounts payable during 2021 due to timing of purchases and payments. The Company’s non-cash items primarily include Depreciation, depletion and amortization, Deferred income taxes, Stock-based compensation, Gain on sale of assets, Other contract termination settlements and Asset impairment charges.

The change in net cash used for financing activities was primarily due to fewer repayments as a result of a reduction in borrowings under the Company’s revolving line of credit during 2022 compared with 2021.

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

Financing Activities

Financing arrangements are obtained and maintained at the subsidiary level. NACoal has a secured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in November 2025. There were no borrowings outstanding under the NACoal Facility at December 31, 2022. At December 31, 2022, the excess availability under the NACoal Facility was $116.3 million, which reflects a reduction for outstanding letters of credit of $33.7 million.

NACCO has not guaranteed any borrowings of NACoal. The NACoal Facility allows for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by the NACoal Facility) and management fees are the primary sources of cash for NACCO and enable the Company to pay dividends to stockholders.

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, 2022, for base rate and LIBOR loans were 1.23% and 2.23%, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was 0.34% on the unused commitment at December 31, 2022. During the year ended December 31, 2022, the average borrowing under the NACoal Facility was $2.0 million. The weighted-average annual interest rate, including the floating rate margin, was 2.54% and 4.50% at December 31, 2022 and December 31, 2021, respectively.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to

EBITDA ratio of 1.50 to 1.00, or if greater than 1.50 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million. At December 31, 2022, NACoal was in compliance with all financial covenants in the NACoal Facility.

The obligations under the NACoal Facility are guaranteed by certain of NACoal's direct and indirect, existing and future

domestic subsidiaries, and is secured by certain assets of NACoal and the guarantors, subject to customary exceptions and

limitations.

The Company believes funds available from cash on hand, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility in November 2025.

See Note 8 and Note 10 to the Consolidated Financial Statements in this Form 10-K for further information on the Company's other financing arrangements and leases, respectively.

Expenditures for property, plant and equipment and mineral interests

Following is a table which summarizes actual and planned expenditures (in millions):

Planned expenditures for 2023 are expected to be approximately $39 million in the NAMining segment, $21 million in the Minerals Management segment, $10 million in the Coal Mining segment and $1 million at Mitigation Resources.

In the NAMining segment, 2023 capital expenditures are primarily related to the acquisition of equipment to be used at the Thacker Pass lithium project. Sawtooth is the contract miner for the Thacker Pass project. Under the terms of the contract mining agreement, the customer will reimburse Sawtooth for these capital expenditures over a five-year period from the equipment acquisition date.

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

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

Capital Structure

NACCO's consolidated capital structure is presented below:

The $52.3 million increase in other net tangible assets was primarily due to an increase in Property, plant and equipment including mineral interests and investments at Mitigation Resources, an increase in Inventories and an increase in Trade accounts receivable at December 31, 2022 compared with December 31, 2021. Inventories increased in the Coal Mining segment as MLMC is developing a new mine area and building inventory and in the NAMining segment due to an increase in supplies inventory. Trade accounts receivable increased due to higher customer requirements at MLMC.

Contractual Obligations, Contingent Liabilities and Commitments

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. The Company does not expect to contribute to its pension plan in 2023. NACCO maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds and expects to pay benefits of approximately $0.4 million per year from 2023 through 2032. Benefit payments beyond that time cannot currently be estimated. NACCO also expects to make payments related to its other postretirement plans of approximately $0.2 million per year from 2023 through 2032. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan.

NACCO has asset retirement obligations. See Note 7 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's asset retirement obligations.

NACCO has unrecognized tax benefits, including interest and penalties. See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

NACoal is a party to certain guarantees related to Coyote Creek. The Company believes that the likelihood of NACoal’s future performance under the guarantees is remote, and no amounts related to these guarantees have been recorded. See Note 16 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's guarantees.

The Company utilizes letters of credit to support commitments made in the ordinary course of business. As of December 31, 2022 and 2021, outstanding letters of credit totaled $33.7 million and $29.8 million, respectively.

ENVIRONMENTAL MATTERS

The Company is affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the U.S. Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition, the Company closely monitors proposed legislation and regulation concerning SMCRA, CAA, ACE, CWA, RCRA, CERCLA and other regulatory actions.

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

Compliance with these increasingly stringent regulations could result in higher expenditures for both capital improvements and operating costs. The Company’s policies stress environmental responsibility and compliance with these regulations. Based on current information, management does not expect compliance with these regulations to have a material adverse effect on the Company’s financial condition or results of operations. See Item 1 in Part I of this Form 10-K for further discussion of these matters.

Certain states have enacted, and others are considering enacting, mandatory clean energy standards requiring utilities to meet certain thresholds of renewable and/or carbon-free energy supply. The current presidential administration has made climate change a focus, including consideration for legislation on clean energy standards and GHG emission, and the Company expects that to continue. The Company believes the move to require utilities to generate a greater portion of energy from renewable energy sources could create imbalances in the existing electric grid if fossil-fuel power plants are retired faster than renewable sources are developed resulting in electrical grid disruptions and outages. The Company will continue to monitor the progress of these initiatives and assess the potential impacts they may have on its financial condition, results of operations and disclosures.

SEGMENT RESULTS

COAL MINING SEGMENT

FINANCIAL REVIEW

See “Item 2. Properties" on page 28 in this Form 10-K for discussion of the Company's mineral resources and mineral reserves.

Tons of coal delivered by the Coal Mining segment were as follows for the years ended December 31:

The results of operations for the Coal Mining segment were as follows for the years ended December 31:

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

2022 Compared with 2021

Revenues increased 14.9% in 2022 compared with 2021 primarily due to a higher per ton sales price and an increase in customer requirements at MLMC.

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

The following table identifies the components of change in operating profit for 2022 compared with 2021:

Operating profit decreased $7.5 million in 2022 compared with 2021. The change in operating profit was primarily due to a decrease in gross profit, a decrease in the earnings of unconsolidated operations and an increase in selling, general and administrative expenses.

The decrease in gross profit was primarily due to an increase in the cost per ton delivered at MLMC, due in part to an increase

in the cost of diesel fuel.

The decrease in earnings of unconsolidated operations was primarily due to a reduction in the per ton management fee at Falkirk as well as a reduction in earnings as a result of the Bisti contract termination as of September 30, 2021. These decreases were partially offset by a contractual price escalation and an increase in customer requirements at Coteau.

The increase in selling, general and administrative expenses was primarily due to higher employee-related costs and

professional service expenses.

The decreases in operating profit were partially offset by an increase in contract termination settlements. The $14.0 million

contract termination settlement from GRE was recognized during 2022. The $10.3 million payment related to the Bisti contract termination was recognized during 2021.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

Aggregate tons delivered by the NAMining segment were as follows for the years ended December 31:

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

The results of operations for the NAMining segment were as follows for the years ended December 31:

(a) See Note 16 to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

2022 Compared with 2021

Total revenues increased 8.5% in 2022 compared with 2021 primarily due to an increase in customer requirements as well as reimbursable costs, which have an offsetting amount in cost of sales and have no impact on operating profit. These improvements were partially offset by a reduction in revenue at Caddo Creek as the scope of final reclamation activities declined.

The following table identifies the components of change in operating profit for 2022 compared with 2021.

Operating profit decreased $1.2 million in 2022 compared with 2021 primarily due to an increase in selling, general and administrative expenses and a voluntary retirement program charge, partially offset by an increase in gross profit.

During 2022, the Company implemented a voluntary retirement program for employees who met certain age and service requirements to reduce overall headcount. As a result of this program, operating profit in 2022 includes a charge of $0.8 million related to one-time termination benefits. The increase in selling, general and administrative expenses was primarily due to higher employee-related costs.

The increase in gross profit was primarily attributable to water sales at Caddo Creek as well as an increase in earnings at Sawtooth Mining for the Thacker Pass lithium project, partially offset by a decrease in gross profit from the active operations mainly due to an increase in employee-related costs.

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

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

The results of operations for the Minerals Management segment were as follows for the years ended December 31:

During 2022, the oil and natural gas industry experienced continued improvement in commodity prices compared with 2021, primarily due to:

•Higher demand as the impact from COVID-19 abates;

•Changes in domestic supply and demand dynamics as well as increased discipline around production and capital investments by oil and gas companies; and

•Instability and constraints on global supply, particularly with respect to instability in Russia and Ukraine.

Oil and natural gas prices have been historically volatile and may continue to be volatile in the future. The table below demonstrates such volatility with the average price as reported by the United States Energy Information Administration for the twelve months ended December 31:

Revenues and operating profit increased in 2022 compared with 2021 primarily due to substantially higher natural gas and oil prices, increased production due in part to income generated from newly developed wells on Company leases during 2022, as well as $2.1 million of settlement income recognized during 2022. The settlement relates to the Company’s ownership interest in certain mineral rights. In addition, operating profit includes a $2.4 million gain on the sale of land related to legacy operations during 2022.

The Company regularly performs reviews of potential future development projects and identified certain legacy coal assets

where future development is unlikely. The long-lived assets, which included land, prepaid royalties and capitalized leasehold

costs, were written off during 2022 and resulted in non-cash asset impairment charges of $3.9 million.

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the years ended December 31:

2022 Compared with 2021

The operating loss increased during 2022 compared with 2021 primarily due to higher employee-related costs.

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

NACCO Industries, Inc. Outlook

Coal Mining Outlook

In 2023, the Company expects coal deliveries to decrease from 2022 levels. The owner of the power plant served by the Company's Sabine Mine in Texas plans to retire the Pirkey power plant in 2023. The cessation of Sabine deliveries starting effective April 1, 2023 is the primary driver for the year-over-year decline in deliveries.

Coal Mining operating profit and Segment Adjusted EBITDA for the 2023 full year are expected to decrease significantly year-over-year, including and excluding the $14.0 million GRE termination payment received in 2022. The decline is primarily the result of an expected significant reduction in earnings at the consolidated operations, an anticipated moderate decrease in earnings of unconsolidated operations and higher operating expenses due to an increase in insurance and outside services expenses.

Results at the consolidated mining operations are projected to decrease significantly in 2023 versus 2022. The decrease is mainly due to an expected substantial decline in earnings at MLMC driven by a reduction in the profit per ton of coal delivered, due in part to increased costs associated with establishing operations in a new mine area, as well as higher depreciation expense related to recent capital expenditures to develop a new mine area. In 2023, capital expenditures are expected to be approximately $10 million, primarily for mine development and equipment replacement. MLMC sells lignite at contractually agreed upon prices which are subject to changes in the level of established indices generally reflecting inflation over time. The increase in production costs will not be offset by an immediate increase in the revenue generated from contractual price escalation as there is a lag in the timing of the effect of inflation on the index-based coal sales price. In addition, certain costs can be passed through to the customer in the year following expense recognition.

The anticipated lower earnings at the unconsolidated coal mining operations is expected to be driven primarily by temporary price concessions at Falkirk effective May 2022 through May 2024. This will result in a reduction in the per ton management fee for 12 months in 2023 compared with eight months in 2022. The planned retirement of the Pirkey power plant and commencement of final reclamation of the Sabine Mine starting on April 1, 2023 will also contribute to the reduction in earnings. Sabine will receive compensation for providing final mine reclamation services, but at a lower rate than during active mining. Funding for Sabine's mine reclamation is the responsibility of the customer. These decreases are expected to be partly offset by higher earnings at Coteau.

The Company's contract structure at each of its coal mining operations eliminates exposure to spot coal market price fluctuations. However, fluctuations in natural gas prices and the availability of renewable power generation, particularly wind, can contribute to changes in power plant dispatch and customer demand for coal. Changes to customer power plant dispatch would affect the Company’s outlook for 2023, as well as over the longer term.

NAMining Outlook

Full-year 2023 operating profit at NAMining is expected to decrease significantly primarily because final mine reclamation activities at Caddo Creek were substantially completed in 2022. Segment Adjusted EBITDA, however, is expected to increase over 2022 because of a significant unfavorable impact on operating profit from higher depreciation expense.

NAMining’s 2022 financial results did not meet expectations. A number of initiatives are underway or in planning stages that are expected to support improved future financial results at NAMining's mining operations. Until profit improves at existing operations, NAMining has narrowed its business development efforts.

In 2023, NAMining capital expenditures are expected to be approximately $39 million primarily for the acquisition of equipment to support the Thacker Pass lithium project.

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

Minerals Management Outlook

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas, oil, natural gas liquids and coal, extracted primarily by third parties. Changing prices of natural gas and oil have a significant impact on Minerals Management’s operating profit.

In 2023, operating profit and Segment Adjusted EBITDA are expected to decrease significantly compared with 2022. This decrease is primarily driven by current market expectations for natural gas and oil prices, an anticipated reduction in volumes as existing wells follow their natural production decline and modest expectations for development of new wells by third-party exploration and production companies.

Based on market expectations, the Company's forecast assumes oil and gas market prices moderate in 2023 to levels in line with 2021 averages; however, commodity prices are inherently volatile. The actions of OPEC, the Russia-Ukraine conflict, inventory levels of natural gas and oil and the uncertainty associated with demand, as well as other factors, have the potential to impact future oil and gas prices. An increase in natural gas and oil prices above current expectations could result in improvements to the 2023 forecast.

As an owner of royalty and mineral interests, the Company’s access to information concerning activity and operations with respect to its interests is limited. The Company's expectations are based on the best information currently available and could vary positively or negatively as a result of adjustments made by operators, additional leasing and development and/or changes to commodity prices. Development of additional wells on existing interests in excess of current expectations could be accretive to future results.

Minerals Management is targeting additional investments in mineral and royalty interests of up to $20 million in 2023. Future investments are expected to be accretive, but each investment's contribution to near-term earnings is dependent on the details of that investment, including the size and type of interests acquired and the stage and timing of mineral development.

Consolidated Outlook

Management continues to view the long-term business outlook for NACCO positively, despite an expected significant decrease in 2023 consolidated net income versus 2022. A substantial portion of the expected reduction in 2023 earnings is because 2022 included $30.9 million of pre-tax contract termination income.

Excluding the contract termination settlement income recognized in the 2022 second quarter, net income in the first half of 2023 is still expected to be significantly lower than the first half of 2022. The decrease is primarily driven by an expected significant reduction in earnings at the Coal Mining and Minerals Management segments in the first half of 2023 versus the prior-year period. At the Coal Mining segment, an anticipated reduction in inventory levels during the first half of 2023 will result in a higher cost per ton and lower earnings at MLMC. In addition, a reduction in earnings from the unconsolidated mines, primarily Falkirk, is also contributing to the decrease. At Minerals Management, the decrease in the first half of 2023 is primarily driven by an expected significant reduction in commodity prices from historically high price levels in the first half of 2022. While consolidated net income in the second half of 2023 is expected to increase over the first half of 2023, it is expected to decline significantly versus the prior-year second half. Overall, 2023 consolidated net income is expected to decrease substantially versus 2022. These reductions are expected to be partially offset by lower income tax expense. The Company expects an effective income tax rate between 2% and 5% in 2023.

Mitigation Resources of North America® continued to build on the substantial foundation established over the past several years and ended 2022 with eight mitigation banks and four permittee-responsible mitigation projects located in Tennessee, Mississippi, Alabama and Texas. Mitigation Resources was recently named a designated provider of abandoned mine land restoration by the State of Texas. It plans to provide ecological restoration services for abandoned surface mines as well as pursue additional environmental restoration projects during 2023.

In 2023, the Company expects capital expenditures of approximately $50 million, excluding Minerals Management. Minerals Management is targeting investments of up to $20 million. Future investments at Minerals Management are expected to continue to align with the Company’s strategy and objectives to establish a blended portfolio of mineral and royalty interests.

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

As a result of the forecasted capital expenditures and anticipated substantial decrease in net income, cash flow before financing activities in 2023 is expected to be positive but decline significantly from 2022.

Long-Term Growth and Diversification Outlook

The Company is pursuing growth and diversification by strategically leveraging its core mining and natural resources management skills to build a strong portfolio of affiliated businesses. Management continues to be optimistic about the long-term outlook. In the Minerals Management segment, as well as in the Company's Mitigation Resources business, opportunities for growth remain strong. Acquisitions of additional mineral interests, an improvement in the outlook for the Company's largest Coal Mining segment customers and securing contracts for Mitigation Resources and new NAMining projects could be accretive to the Company's outlook. Additional business development expenditures will be incurred as part of this growth and would provide a partial offset to the additional income.

The Minerals Management segment continues to pursue acquisitions of mineral and royalty interests in the United States. The Minerals Management segment expects to benefit from the continued development of its mineral properties without additional capital investment, as development costs are borne entirely by third-party exploration and development companies who lease the minerals. This business model can deliver higher average operating margins over the life of a reserve than traditional oil and gas companies that bear the cost of exploration, production and/or development. Catapult, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas mineral and royalty interests, has developed a strong network to source and secure new acquisitions. The goal is to construct a high-quality diversified portfolio of oil and gas mineral and royalty interests in the United States that deliver near-term cash flow yields and long-term projected growth. The Company believes this business will provide unlevered after-tax returns on invested capital in the mid-teens as this business model matures.

The Company remains committed to expanding the NAMining business while improving profitability. NAMining intends to be a substantial contributor to operating profit over time. The pace of achieving that objective will be dependent on the execution and successful implementation of profit improvement initiatives in the aggregates operations, and the mix and scale of new projects. The Sawtooth Mining lithium project is expected to contribute more significantly when production commences at Thacker Pass.

Sawtooth Mining has a mining services agreement to serve as the exclusive contract miner for the Thacker Pass lithium project in northern Nevada, owned by Lithium Nevada Corp., a subsidiary of Lithium Americas Corp. (TSX: LAC) (NYSE: LAC). Lithium Americas owns the lithium reserves at Thacker Pass. In January 2023, Lithium Americas and General Motors announced that they will jointly invest to develop the Thacker Pass project. According to Lithium Americas, the GM agreement is a major milestone in moving Thacker Pass toward production. On March 2, 2023, Lithium Americas announced that construction has commenced. Phase 1 production is projected to begin in the second half of 2026. Sawtooth Mining plans to begin acquiring equipment for this project in 2023. Under the terms of the contract mining agreement, Lithium Americas will reimburse Sawtooth for these capital expenditures over a five-year period from the equipment acquisition date. Sawtooth will be reimbursed for all costs of mine construction plus a construction fee. The Company expects to recognize moderate income in 2024 and 2025 prior to commencement of production in 2026. Once production commences, Sawtooth will receive a management fee per metric ton of lithium delivered. At maturity, this contract is expected to deliver fee income similar to a mid-sized management fee coal mine.

Mitigation Resources continues to expand its business, which creates and sells stream and wetland mitigation credits and provides services to those engaged in permittee-responsible mitigation as well as provides other environmental restoration services. This business offers an opportunity for growth and diversification in an industry where the Company has substantial knowledge and expertise and a strong reputation. Mitigation Resources is making strong progress toward its goal of becoming a top ten provider of stream and wetland mitigation services in the southeastern United States. The Company believes that Mitigation Resources can provide solid rates of return as this business matures.

The Company also continues to pursue activities which can strengthen the resiliency of its existing coal mining operations. The Company remains focused on managing coal production costs and maximizing efficiencies and operating capacity at mine locations to help customers with management fee contracts be more competitive. These activities benefit both customers and the Company's Coal Mining segment, as fuel cost is a significant driver for power plant dispatch. Increased power plant

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

dispatch results in increased demand for coal by the Coal Mining segment's customers. Fluctuating natural gas prices and availability of renewable energy sources, such as wind and solar, could affect the amount of electricity dispatched from coal-fired power plants. While the Company realizes the coal mining industry faces political and regulatory challenges and demand for coal is projected to decline over the longer-term, the Company believes coal will be an essential part of the energy mix in the United States for the foreseeable future. Subsequent to 2023, the Coal Mining segment expects increased profitability compared with 2023 expectations due in part to improvements at Falkirk and MLMC. At Falkirk, the temporary price concessions end in June 2024. At MLMC, the move to a new mine area will be completed during 2023, and as a result, cost per ton delivered in 2024 is expected to moderate. In addition, certain costs incurred at MLMC in 2023 will be passed through to the customer and included in revenues in 2024.

The Company continues to look for ways to create additional value by utilizing its core mining competencies which include reclamation and permitting. One such way the Company may be able to utilize these skills is through development of utility-scale solar projects on reclaimed mining properties. Reclaimed mining properties offer large tracts of land that could be well-suited for solar and other energy-related projects. These projects could be developed by the Company itself or through joint ventures that include partners with expertise in energy development projects.

The Company is committed to maintaining a conservative capital structure as it continues to grow and diversify, while avoiding unnecessary risk. Strategic diversification will generate cash that can be re-invested to strengthen and expand the businesses. The Company also continues to maintain the highest levels of customer service and operational excellence with an unwavering focus on safety and environmental stewardship.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 2 to the Consolidated Financial Statements in this Form 10-K for a description of recently issued accounting standards, if any, including actual and expected dates of adoption and effects to the Company's Consolidated Financial Statements.

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

FORWARD-LOOKING STATEMENTS

The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation: (1) changes to or termination of customer or other third-party contracts, or a customer or other third party default under a contract, (2) any customer's premature facility closure, (3) a significant reduction in purchases by the Company's customers, including as a result of changes in coal consumption patterns of U.S. electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (4) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas, natural gas liquids and oil, (5) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons; the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located; federal and state legislative and regulatory initiatives relating to hydraulic fracturing; and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (6) failure to obtain adequate insurance coverages at reasonable rates, (7) supply chain disruptions, including price increases and shortages of parts and materials, (8) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (9) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (10) impairment charges, (11) the effects of investors’ and other stakeholders’ increasing attention to environmental, social and governance matters, (12) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (13) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (14) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (15) weather or equipment problems that could affect deliveries to customers, (16) changes in the costs to reclaim mining areas, (17) costs to pursue and develop new mining, mitigation and oil and gas opportunities and other value-added service opportunities, (18) delays or reductions in coal or aggregates deliveries, (19) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (20) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment, and (21) the ability to attract, retain, and replace workforce and administrative employees.

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

OVERVIEW

Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements."

Management's Discussion and Analysis of Financial Condition and Results of Operations include NACCO Industries, Inc.® (“NACCO” or the “Company”). NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources businesses. The Company operates under three business segments: Coal Mining, North American Mining ("NAMining") and Minerals Management. The Coal Mining segment operates surface coal mines for power generation companies and an activated carbon producer. The NAMining segment is a trusted mining partner for producers of aggregates, lithium and other minerals. The Minerals Management segment, which includes the Catapult Mineral Partners (“Catapult”) business, acquires and promotes the development of mineral interests. In addition, Mitigation Resources of North America® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

The Company has items not directly attributable to a reportable segment that are not included as part of the measurement of segment operating profit, which primarily includes administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources and Bellaire Corporation ("Bellaire"). Bellaire manages the Company’s long-term liabilities related to former Eastern U.S. underground mining activities.

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

See “Item 1. Business" beginning on page 1 in this Form 10-K for further discussion of NACCO's subsidiaries. Additional information relating to financial and operating data on a segment basis (including unallocated items) is set forth in Note 15 to the Consolidated Financial Statements contained in this Form 10-K.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition: Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers." See Note 3 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's revenue recognition.

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

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

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 regularly performs reviews of potential future development projects and identified certain undeveloped properties where market conditions related to any future development deteriorated during 2020. As a result, the Company recognized charges of $7.3 million in the Minerals Management segment and $1.1 million in the Coal Mining segment to write-off certain capitalized leasehold costs, prepaid royalties and other assets during 2020.

At MLMC, the costs of mining operations are not reimbursed by MLMC's customer. As such, increased costs at MLMC or decreased revenues could materially reduce the Company's profitability. Any reduction in customer demand at MLMC, including reductions related to reduced mechanical availability of the customer’s power plant, would adversely affect the Company's operating results and could result in significant impairments. MLMC has approximately $136 million of long-lived assets, including property, plant and equipment and its coal supply agreement intangible asset, which are subject to periodic impairment analysis and review. Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including assumptions about future power plant dispatch levels, changes in operating costs and other factors that impact anticipated revenue and customer demand, requires significant judgment. Actual future operating results could differ significantly from these estimates, which may result in an impairment charge in a future period, which could have a substantial impact on the Company’s results of operations.

Income taxes: Tax law requires certain items to be included in the tax return at different times than the items are reflected in the financial statements. Some of these differences are permanent, such as expenses that are not deductible for tax purposes, and some differences are temporary, reversing over time, such as depreciation expense. These temporary differences create deferred tax assets and liabilities using currently enacted tax rates. The objective of accounting for income taxes is to recognize the amount of taxes payable or refundable for the current year, and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the provision for income taxes in the period that includes the enactment date. Management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted laws and tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, or changes in the structure or tax status.

The Company's tax assets, liabilities, and tax expense are supported by historical earnings and losses and the Company's best estimates and assumptions of future earnings. The Company assesses whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying businesses. When the Company determines, based on all available evidence, that it is more likely than not that deferred tax assets will not be realized, a valuation allowance is established.

Since significant judgment is required to assess the future tax consequences of events that have been recognized in the Company's financial statements or tax returns, the ultimate resolution of these events could result in adjustments to the Company's financial statements and such adjustments could be material. The Company believes the current assumptions, judgments and other considerations used to estimate the current year accrued and deferred tax positions are appropriate. If the actual outcome of future tax consequences differs from these estimates and assumptions, due to changes or future events, the resulting change to the provision for income taxes could have a material impact on the Company's results of operations and financial position.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

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NACCO INDUSTRIES, INC. AND SUBSIDIARIES

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

CONSOLIDATED FINANCIAL SUMMARY

The results of operations for NACCO were as follows for the years ended December 31:

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

Other income, net

Interest income decreased $0.8 million primarily due lower interest rates and a lower average invested cash balance during 2021 compared with 2020.

Gain on equity securities represents changes in the market price of invested assets reported at fair value. The change in 2021 compared with 2020 was due to fluctuations in the market prices of the underlying assets. See Note 9 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's invested assets reported at fair value.

North American Coal Corporation India Private Limited ("NACC India") was formed to provide technical business advisory

services to the third-party owner of a coal mine in India. During 2014, NACC India's customer defaulted on its contractual

payment obligations and as a result of this default, NACC India terminated its contract with the customer and began pursuing

contractual remedies. During 2020, the Company received a $1.0 million payment from NACC India's customer which has been reported on the line, Other, net.

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

Income Taxes

The Company recorded an income tax expense of $8.7 million for the year ended December 31, 2021 on income before income tax of $56.9 million, or 15.3%, compared to income tax benefit of $0.5 million for the year ended December 31, 2020 on income before income tax of $14.3 million, or (3.8%). The income tax benefit for the year ended December 31, 2020 included $7.3 million of discrete tax charges primarily related to settlement of tax examinations, reserves for uncertain tax positions and return to provision adjustments partially offset by a benefit of $4.7 million, primarily due to the rate differential related to carrying back losses under the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act allows net operating tax losses incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company generated a net tax operating loss in 2020 primarily due to the realization of certain deferred tax assets. There were no material discrete items affecting income tax expense in 2021.

The effective income tax rate for 2021 reflects the impact of higher pre-tax income in 2021 compared with 2020, including the termination fee associated with the Bisti contract termination. The effective income tax rate varies based upon the mix and timing of earnings between entities that benefit from percentage depletion and those that do not benefit from percentage depletion. The benefit from percentage depletion is not directly related to the amount of pre-tax income recorded in a period.

See Note 13 to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

The following tables detail the change in cash flow for the years ended December 31:

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

The $77.4 million increase in net cash provided by (used for) operating activities was primarily the result of favorable working capital changes and an increase in net income. Working capital changes primarily included:

•Decreased payments made under deferred compensation and long-term incentive compensation plans in 2021 compared with 2020.

•An increase in Accounts payable during 2021 compared with a decrease in Accounts payable during 2020 due to timing of payments.

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

Financing Activities

Financing arrangements are obtained and maintained at the subsidiary level. NACoal has a secured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in November 2025. Borrowings outstanding under the NACoal Facility were $4.0 million at December 31, 2021. At December 31, 2021, the excess availability under the NACoal Facility was $116.2 million, which reflects a reduction for outstanding letters of credit of $29.8 million.

NACCO has not guaranteed any borrowings of NACoal. The borrowing agreements at NACoal allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by NACoal's borrowing agreement) and management fees are the primary sources of cash for NACCO and enable the Company to pay dividends to stockholders.

The 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, 2021, 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 0.35% on the unused commitment at December 31, 2021. During the year ended December 31, 2021, the average borrowing under the NACoal Facility was $20.5 million and the weighted-average annual interest rate was 2.1%.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to

EBITDA ratio of 1.50 to 1.00, or if greater than 1.50 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million. At December 31, 2021, NACoal was in compliance with all financial covenants in the NACoal Facility.

The obligations under the NACoal Facility are guaranteed by certain of NACoal's direct and indirect, existing and future

domestic subsidiaries, and is secured by certain assets of NACoal and the guarantors, subject to customary exceptions and

limitations.

The Company believes funds available from cash on hand, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility in November 2025.

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

Expenditures for property, plant and equipment and mineral interests

Following is a table which summarizes actual and planned expenditures (in millions):

Planned expenditures for 2022 are expected to be approximately $27 million in the NAMining segment, $22 million in the Coal Mining segment, $10 million in the Minerals Management segment and up to $9 million at Mitigation Resources.

In the Coal Mining segment, elevated levels of expected capital expenditures through 2022 are primarily related to spending at

MLMC as it develops a new mine area. In the NAMining segment, expected capital expenditures through 2022 are primarily

for the acquisition, relocation and refurbishment of draglines as well as the acquisition of other mining equipment to support the expansion of contract mining services beyond NAMining's historical dragline-oriented model, including the acquisition of

equipment to support Thacker Pass.

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

Capital Structure

NACCO's consolidated capital structure is presented below: