NACCO INDUSTRIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2016
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or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File No. 1-9172
NACCO INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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34-1505819
(I.R.S. Employer Identification No.)
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5875 Landerbrook Drive, Suite 220, Cleveland, Ohio
(Address of principal executive offices)
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44124-4069
(Zip Code)
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Registrant's telephone number, including area code:
(440) 229-5151
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Class A Common Stock, Par Value $1.00 Per Share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, Par Value $1.00 Per Share
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES
¨
NO
þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES
¨
NO
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES
þ
NO
£
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES
þ
NO
£
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
¨
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Accelerated filer
þ
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
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Smaller reporting company
¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
YES
¨
NO
þ
Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates as of
June 30, 2016
(the last business day of the registrant's most recently completed second fiscal quarter):
$231,463,960
Number of shares of Class A Common Stock outstanding at
February 24, 2017
:
5,259,948
Number of shares of Class B Common Stock outstanding at
February 24, 2017
:
1,570,915
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for its
2017
annual meeting of stockholders are incorporated herein by reference in Part III of this Form 10-K.
1
NACCO INDUSTRIES, INC.
TABLE OF CONTENTS
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PAGE
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2
General
NACCO Industries, Inc. (“NACCO” or the “Company”) is an operating holding company with the following principal businesses: mining, small appliances and specialty retail.
(a)
North American Coal.
The Company’s wholly owned subsidiary, The North American Coal Corporation and its affiliated companies (collectively, “NACoal”), mine coal primarily for use in power generation and provide value-added services for natural resource companies.
(b)
Hamilton Beach Brands.
The Company’s wholly owned subsidiary, Hamilton Beach Brands, Inc. (“HBB”), is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels
.
(c)
Kitchen Collection.
The Company’s wholly owned subsidiary, The Kitchen Collection, LLC (“KC”), is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States.
Additional information relating to financial and operating data on a segment basis (including NACCO and Other) and by geographic region is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II of this Form 10-K and
in Note 16
to the Consolidated Financial Statements contained in this Form 10-K.
NACCO was incorporated as a Delaware corporation in 1986 in connection with the formation of a holding company structure for a predecessor corporation organized in 1913. As of
December 31, 2016
, the Company and its subsidiaries had approximately
3,600
employees, including approximately
1,700
employees at the Company’s unconsolidated mines.
The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports available, free of charge, through its website, www.nacco.com, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”).
Significant Events
During the fourth quarter of 2016, NACoal began providing mining services to a new customer in Florida under a cost-plus arrangement.
During 2015, Bisti Fuels Company, LLC ("Bisti"), a wholly owned subsidiary of NACoal, entered into a 15-year, cost-plus contract mining agreement with Navajo Transitional Energy Company, LLC ("NTEC"). Under the agreement, Bisti became NTEC's contract miner at NTEC's Navajo Mine, a surface coal mine located within the Navajo Nation near Fruitland, San Juan County, New Mexico on January 1, 2017. Production is anticipated to be between 5.0 million to 6.0 million tons of coal per year when the power plant supplied by Bisti's customer is operating at anticipated levels.
During 2014, NACoal determined that indicators of impairment existed at Centennial Natural Resources, LLC ("Centennial") and, as a result, reviewed Centennial's long-lived assets for impairment. NACoal recorded a non-cash, asset impairment charge of
$105.1 million
in 2014 for Centennial's long-lived asset group. Centennial ceased active mining operations at the end of 2015. During the third quarter of 2016, the Company's NACoal subsidiary recorded an additional non-cash impairment charge of $17.4 million, reducing the carrying value of coal, land and real estate and assets held for sale at Centennial.
During 2015, HBB began selling Wolf Gourmet
®
branded products under a licensing agreement with Sub-Zero Group, Inc.
On December 16, 2014, HBB acquired Weston Products, LLC, which HBB refers to as Weston Brands, in exchange for cash consideration of
$25.4 million
, of which
$25.0 million
was paid at closing in 2014. As a result of the 2014 Weston Brands acquisition, HBB now markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston
®
brand as well as several private label brands. The results of Weston Brands operations have been included in the Company's Consolidated Financial Statements since December 16, 2014.
On May 10, 2016, the Company's Board of Directors approved a stock repurchase program (the "2016 Stock Repurchase Program"), which provides for the purchase of up to $50 million of the Company's Class A Common Stock outstanding through December 31, 2017. The Company’s previous $60 million stock repurchase program, announced in 2013, was completed in October 2015. As of December 31, 2016, NACCO has repurchased
109,261
of its Class A Common Stock for an aggregate purchase price of approximately
$6.0 million
during the year ended December 31, 2016.
1
A. North American Coal
General
NACoal mines coal primarily for use in power generation and provides value-added services for natural resource companies. Coal is surface mined from NACoal's mines in North Dakota, Texas, Mississippi, Louisiana, and as of January 2017, on the Navajo Nation in New Mexico. NACoal provides value-added services such as maintaining and operating draglines for independently owned limerock quarries through its North American Mining ("NAM") division and providing ash hauling services for power plants and other facilities.
NACoal has the following operating coal mining subsidiaries: Bisti, Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Liberty Fuels Company, LLC (“Liberty”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).
Coteau, Coyote, Falkirk, Liberty, MLMC and Sabine supply lignite coal for power generation. Bisti and Camino Real supply sub-
bituminous coal for power generation.
Caddo Creek and Demery supply lignite coal for the production of activated carbon. Each of these mines are mine-mouth operations that deliver their coal production to adjacent or nearby power plants, synfuels plants or activated carbon processing facilities under long-term supply contracts.
All of the operating coal mining subsidiaries other than MLMC are unconsolidated. The unconsolidated coal mining subsidiaries were formed to develop, construct and/or operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. The contracts with the customers of the unconsolidated subsidiaries provide for reimbursement to the company at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus an agreed upon fee per btu of heating value delivered. The fees earned at each mine adjust over time in line with various indices which reflect general U.S. inflation rates.
MLMC is a consolidated entity because NACoal pays all operating costs and provides the capital for the mine. MLMC sells coal to its customer at a contractually agreed upon price which adjusts monthly, primarily based on changes in the level of established indices which reflect general U.S. inflation rates. MLMC's customer, KMRC RH, LLC until April 30, 2016 and Choctaw Generation Limited Partnership, LLLP subsequent to April 30, 2016, accounted for approximately
69%
,
57%
and
39%
of NACoal's revenues for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Centennial, which ceased coal production in the fourth quarter of 2015, is also a consolidated entity.
NAM provides value-added services for independently owned limerock quarries and is reimbursed by its customers based on actual costs plus a management fee. The financial results for NAM are included in the consolidated mining operations or unconsolidated mining operations based on each entity's structure. NAM's largest customer, Cemex Construction Materials of Florida, LLC ("Cemex"), accounted for approximately
16%
of NACoal's revenues for the year ended
December 31, 2016
.
NACoal also provides coal handling, processing and drying services for a number of customers. For example, NoDak Energy Services, LLC ("NoDak") operates and maintains a coal processing facility for a customer's power plant. North American Coal Royalty Company provides surface and mineral acquisition and lease maintenance services related to the Company's operations.
NACoal's total coal reserves approximate
1.9 billion
tons (including the unconsolidated coal mining subsidiaries), with approximately
1.0 billion
tons committed to customers pursuant to long-term contracts. At
December 31, 2016
, NACoal's operating mines consisted both of mines where the reserves were acquired (whether in fee or through leases) and developed by NACoal, as well as mines where reserves are owned or leased by the customers of the mines and developed by NACoal.
2
Sales, Marketing and Operations
The principal coal customers of NACoal are electric utilities, an independent power provider, producers of activated carbon and a synfuels plant. The total coal severed by mine (in millions of tons) for the three years ended December 31 and the weighted average prices per ton delivered for the three years ended December 31 are as follows:
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2016
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2015
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2014
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Unconsolidated Mines
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Coteau
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14.1
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14.3
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14.4
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Falkirk
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7.2
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8.0
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8.0
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Sabine
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4.2
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3.6
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4.4
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Camino Real
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1.8
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0.6
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—
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Coyote Creek
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1.6
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—
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—
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Other
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0.6
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0.6
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1.0
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Consolidated Mines
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Mississippi Lignite Mining Company
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2.8
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3.0
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2.9
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Centennial Natural Resources
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—
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0.4
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0.9
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Total tons severed
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32.3
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30.5
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31.6
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Price per ton delivered
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$
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22.14
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$
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23.63
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$
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23.75
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The contracts under which certain of the unconsolidated subsidiaries operate provide that, under certain conditions, including default, the customer(s) involved may elect or be obligated to acquire the assets (subject to the liabilities) or the capital stock of the NACoal mining subsidiary for an amount effectively equal to book value. NACoal does not know of any conditions of default that currently exist.
Seasonality
NACoal has experienced limited variability in its results due to the effect of seasonality; however, variations in coal demand can occur as a result of the timing of planned or unplanned outage days at NACoal's customers' facilities. Variations in coal demand can also occur as a result of changes in demand for electricity, which can fluctuate based on changes in weather patterns.
3
The location, mine type, reserve data, coal quality characteristics, sales tonnage and contract expiration date for the mines operated by NACoal were as follows:
COAL MINING OPERATIONS ON AN “AS RECEIVED” BASIS
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2016
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2015
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Proven and Probable Reserves (a)(b)
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Committed
Under
Contract
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Uncommitted
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Total
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Tons
Delivered
(Millions)
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Owned
Reserves
(%)
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Leased
Reserves
(%)
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Total
Committed
and
Uncommitted
(Millions of
Tons)
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Tons
Delivered
(Millions)
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Contract
Expires
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Mine/Reserve
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Type of Mine
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(Millions of Tons)
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Unconsolidated Mines
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Freedom Mine (c)-
The Coteau Properties Company |
Surface Lignite
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459.5
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—
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459.5
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14.1
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3
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%
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97
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%
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480.7
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14.4
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2022
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(d)
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Falkirk Mine (c)-
The Falkirk Mining Company |
Surface Lignite
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381.0
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—
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381.0
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7.2
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1
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%
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99
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%
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390.4
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8.0
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2045
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South Hallsville No. 1 Mine (c)-
The Sabine Mining Company |
Surface Lignite
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(e)
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(e)
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(e)
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4.2
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(e)
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(e)
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(e)
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3.7
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2035
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Five Forks Mine (c)-
Demery Resources Company, LLC |
Surface Lignite
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(e)
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(e)
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(e)
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0.2
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(e)
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(e)
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(e)
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0.2
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2030
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Marshall Mine (c)-
Caddo Creek Resources Company, LLC |
Surface Lignite
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(e)
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(e)
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(e)
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0.2
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(e)
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(e)
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(e)
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0.2
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2044
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Eagle Pass Mine (c)-
Camino Real Fuels, LLC |
Surface
Sub-bituminous
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(e)
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(e)
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(e)
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1.8
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(e)
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(e)
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(e)
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0.5
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2018
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Liberty Mine (c)-
Liberty Fuels Company, LLC |
Surface Lignite
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(e)
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(e)
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(e)
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0.3
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(e)
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(e)
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(e)
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(f)
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2055
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(g)
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Coyote Creek Mine (c)-
Coyote Creek Mining Company, LLC |
Surface Lignite
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77.3
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—
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77.3
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1.5
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0
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%
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100
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%
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79.0
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(h)
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2040
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Navajo Mine (c)- Bisti Fuels Company
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Surface
Sub-bituminous |
(e)
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(e)
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(e)
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(i)
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(e)
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(e)
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(e)
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(i)
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2031
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Consolidated Mines
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Red Hills Mine-
Mississippi Lignite Mining Company |
Surface Lignite
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113.5
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115.9
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229.4
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3.0
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33
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%
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67
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%
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232.6
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3.2
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2032
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Centennial Natural Resources
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Surface Bituminous
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—
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57.7
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57.7
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—
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30
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%
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70
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%
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60.3
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0.4
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(j)
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Total Developed
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1,031.3
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173.6
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1,204.9
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32.5
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1,243.0
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30.6
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Undeveloped Mines
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.
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North Dakota
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—
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243.7
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243.7
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—
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100
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%
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283.2
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—
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Texas
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—
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222.5
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222.5
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—
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100
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%
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225.6
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—
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Eastern (k)
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—
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28.7
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28.7
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—
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100
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%
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28.7
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—
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Mississippi
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—
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187.8
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187.8
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—
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100
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%
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187.8
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—
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Total Undeveloped
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—
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682.7
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682.7
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—
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725.3
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—
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Total Developed/Undeveloped
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1,031.3
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856.3
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1,887.6
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1,968.3
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4
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Average Coal Quality (As received)
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Mine/Reserve
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Type of Mine
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Coal Formation or
Coal Seam(s)
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Average Seam
Thickness (feet)
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Average
Depth (feet)
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BTUs/lb
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Sulfur
(%)
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Ash
(%)
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Moisture (%)
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Unconsolidated Mines
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Freedom Mine (c)-
The Coteau Properties Company |
Surface Lignite
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Beulah-Zap Seam
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18
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130
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6,700
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0.90
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%
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9
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%
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36
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%
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Falkirk Mine (c)-
The Falkirk Mining Company |
Surface Lignite
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Hagel A&B, Tavis
Creek Seams
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8
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90
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6,200
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0.62
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%
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11
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%
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38
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%
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South Hallsville No. 1 Mine (c)-
The Sabine Mining Company |
Surface Lignite
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(e)
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(e)
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(e)
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(e)
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(e)
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(e)
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(e)
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Five Forks Mine (c)-
Demery Resources Company, LLC |
Surface Lignite
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(e)
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(e)
|
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(e)
|
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(e)
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(e)
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(e)
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(e)
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|||||||||
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Marshall Mine (c)-
Caddo Creek Resources Company, LLC |
Surface Lignite
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(e)
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(e)
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(e)
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(e)
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(e)
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(e)
|
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(e)
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|||||||||
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Eagle Pass Mine (c)-
Camino Real Fuels, LLC |
Surface
Sub-bituminous
|
(e)
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
|||||||||
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Liberty Mine (c)-
Liberty Fuels Company, LLC |
Surface Lignite
|
(e)
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
|||||||||
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Coyote Creek Mine (c)-
Coyote Creek Mining Company, LLC |
Surface Lignite
|
Beulah-Zap Seam
|
10
|
|
95
|
|
6,900
|
|
0.98
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%
|
8
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%
|
36
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%
|
|||||||||
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Navajo Mine (c)- Bisti Fuels Company
|
Surface
Sub-bituminous |
(e)
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
(e)
|
|
|||||||||
|
Consolidated Mines
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Red Hills Mine-
Mississippi Lignite Mining Company |
Surface Lignite
|
C, D, E, F, G, H Seams
|
3.6
|
|
150
|
|
5,200
|
|
0.60
|
%
|
14
|
%
|
43
|
%
|
|||||||||
|
Centennial Natural Resources
|
Surface Bituminous
|
Black Creek, C1, C2, C3, New Castle, Mary Lee, Jefferson, American, Nickel Plate, Pratt Seams
|
1.75
|
|
178
|
|
13,226
|
|
2.00
|
%
|
10
|
%
|
4
|
%
|
|||||||||
|
Undeveloped Mines
|
|
|
|||||||||||||||||||||
|
North Dakota
|
—
|
|
Fort Union Formation
|
13
|
|
130
|
|
6,500
|
|
0.8
|
%
|
8
|
%
|
38
|
%
|
||||||||
|
Texas
|
—
|
|
Wilcox Formation
|
5
|
|
120
|
|
6,800
|
|
1.0
|
%
|
16
|
%
|
30
|
%
|
||||||||
|
Eastern
|
—
|
|
Freeport & Kittanning Seams
|
4
|
|
400
|
|
12,070
|
|
3.3
|
%
|
12
|
%
|
3
|
%
|
||||||||
|
Mississippi
|
—
|
|
Wilcox Formation
|
5
|
|
130
|
|
5,200
|
|
0.6
|
%
|
13
|
%
|
44
|
%
|
||||||||
|
(a)
|
Committed and uncommitted tons represent in-place estimates. The projected extraction loss is approximately 10% of the proven and probable reserves, except with respect to the Eastern Undeveloped Mines, in which case the projected extraction loss is approximately 30% of the proven and probable reserves.
|
|
(b)
|
NACoal’s reserve estimates are generally based on the entire drill hole database for each reserve, which was used to develop a geologic computer model using a 200 foot grid and inverse distance to the second power as an interpolator for all of NACoal's reserves, except for the reserves of Centennial where a 50 foot grid was used. As such, all reserves are considered proven (measured) within NACoal’s reserve estimate. None of NACoal’s coal reserves have been reviewed by independent experts.
|
|
(c)
|
The contracts for these mines require the customer to cover the cost of the ongoing replacement and upkeep of the plant and equipment of the mine.
|
|
(d)
|
Although the term of the existing coal sales agreement terminates in 2022, the term may be extended for three additional periods of five years, or until 2037, at the option of Coteau.
|
|
(e)
|
The reserves are owned and controlled by the customer and, therefore, have not been listed in the table.
|
|
(f)
|
The contract for development of this mine was executed during 2010, and no deliveries occurred during 2015.
|
|
(g)
|
The term of this contract is 40 years, commencing on the date of commercial deliveries, which is anticipated to occur during 2017.
|
|
(h)
|
The contract for development of this mine was executed during 2012, and no sales occurred during
2015
.
|
|
(i)
|
The contract for operation of this mine was executed during 2015, and no sales occurred during 2016 or 2015.
|
|
(j)
|
The majority of the coal produced was sold to a single customer under contract through the third quarter of 2015.
|
|
(k)
|
The proven and probable reserves included in the table do not include coal that is leased to others. NACoal had 100.0 million tons and 105.2 million tons in
2016
and
2015
, respectively, of Eastern Undeveloped Mines with leased coal committed under contract.
|
5
6
Unconsolidated Mines
Freedom Mine — The Coteau Properties Company
The Freedom Mine generally produces between 13 million and 15 million tons of lignite coal annually. The mine started delivering coal in 1983. All production from the mine is sold to Dakota Coal Company, a wholly owned subsidiary of Basin Electric Power Cooperative. Dakota Coal Company then sells the coal to the Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station, all of which are operated by affiliates of Basin Electric Power Cooperative.
The Freedom Mine, operated by Coteau, is located approximately 90 miles northwest of Bismarck, North Dakota. The main entrance to the Freedom Mine is accessed by means of a paved road and is located on County Road 15. Coteau holds 276 leases granting the right to mine approximately 33,269 acres of coal interests and the right to utilize approximately 22,486 acres of surface interests. In addition, Coteau owns in fee 32,263 acres of surface interests and 4,107 acres of coal interests. Substantially all of the leases held by Coteau were acquired in the early 1970s and have been replaced with new leases or have lease terms for a period sufficient to meet Coteau’s contractual production requirements.
The reserves are located in Mercer County, North Dakota, starting approximately two miles north of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 100 miles northwest of the Freedom Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand, silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Falkirk Mine — The Falkirk Mining Company
The Falkirk Mine generally produces between 7 million and 9 million tons of lignite coal annually primarily for the Coal Creek Station, an electric power generating station owned by Great River Energy. The mine started delivering coal in 1978. Commencing in the second half of 2014, Falkirk began delivering coal to Spiritwood Station, another electric power generating station owned by Great River Energy. Annual deliveries to Spiritwood Station are anticipated to average between 300,000 and 500,000 tons.
The Falkirk Mine, operated by Falkirk, is located approximately 50 miles north of Bismarck, North Dakota on a paved access road off U.S. Highway 83. Falkirk holds 280 leases granting the right to mine approximately 44,917 acres of coal interests and the right to utilize approximately 24,389 acres of surface interests. In addition, Falkirk owns in fee 40,030 acres of surface interests and 1,270 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the early 1970s with initial terms that have been further extended by the continuation of mining operations.
The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of the town of Washburn, North Dakota to four miles north of the town of Underwood, North Dakota. Structurally, the area is located on an intercratonic basin containing a thick sequence of sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel Butte Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor Formation. The Sentinel Butte Formation conformably overlies the Bullion Creek Formation. The general stratigraphic sequence in the upland portions of the reserve area (Sentinel Butte Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay, lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a repeating sequence of silty to sand clays with generally thin lignite beds.
South Hallsville No. 1 Mine — The Sabine Mining Company
The South Hallsville No. 1 Mine generally produces between 3 million and 5 million tons of lignite coal annually when Southwestern Electric Power Company’s Henry W. Pirkey Plant is operating at anticipated levels. The mine started delivering coal in 1985.
The South Hallsville No. 1 Mine, operated by Sabine, is located approximately 150 miles east of Dallas, Texas on FM 968. The entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or option to acquire any of the reserves at the South Hallsville No. 1 Mine. Southwestern Electric Power Company controls all of the reserves within the South Hallsville No. 1 Mine.
Five Forks Mine — Demery Resources Company, LLC
The Five Forks Mine, operated by Demery, is located approximately three miles north of Creston, Louisiana on State Highway 153. Access to the Five Forks Mine is by means of a paved road. Demery commenced delivering coal to its customer in 2012.
7
Demery has no title, claim, lease or option to acquire any of the reserves at the Five Forks Mine. Demery's customer, Five Forks Mining, LLC, controls all of the reserves within the Five Forks Mine.
Marshall Mine — Caddo Creek Resources Company, LLC
The Marshall Mine, operated by Caddo Creek, commenced production in late 2014 and is located approximately ten miles south of Marshall, Texas on FM-1186. Access to the Marshall Mine is by means of a paved road. Caddo Creek has no title, claim, lease or option to acquire any of the reserves at the Marshall Mine. Marshall Mine, LLC controls all of the reserves within the Marshall Mine.
Eagle Pass Mine — Camino Real Fuels, LLC
The Eagle Pass Mine, operated by Camino Real, began delivering coal in 2015 to Camino Real's customer, Dos Republicas Coal Partnership. The Eagle Pass Mine produces between 1 million and 3 million tons of sub-bituminous coal annually when operating at anticipated levels.
Eagle Pass Mine is located approximately six miles north of Eagle Pass, Texas on State Highway 1588. Access to the Eagle Pass Mine is by means of a paved road. Camino Real has no title, claim, lease or option to acquire any of the reserves at the Eagle Pass Mine. Dos Republicas Coal Partnership controls all of the reserves within the Eagle Pass Mine.
Liberty Mine — Liberty Fuels Company, LLC
Liberty began delivering coal to Mississippi Power Company in July 2016 for facility testing and commissioning. Production levels at Liberty are expected to increase gradually and to build to full production of approximately 4.5 million tons of coal annually, although the pace of future deliveries will be affected by the timing of the Kemper County Energy Facility reaching full operating capacity.
The Liberty Mine is located approximately 20 miles north of Meridian, Mississippi off State Highway 493. Liberty has no title, claim, lease or option to acquire any of the reserves at the Liberty Mine. Mississippi Power Company controls all of the reserves within the Liberty Mine.
Coyote Creek Mine - Coyote Creek Mining Company, LLC
In the second quarter of 2016, the Coyote Creek Mine began delivering coal to the Coyote Station owned by Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Company and Northwestern Corporation. The Coyote Creek Mine generally produces approximately 2.0 million to 2.5 million tons of lignite coal annually when Coyote Station is operating at anticipated levels.
The Coyote Creek Mine is located approximately 70 miles northwest of Bismarck, North Dakota. The main entrance to the Coyote Creek Mine is accessed by means of a four-mile paved road extending west off of State Highway 49. Coyote Creek holds a sublease to 85 leases granting the right to mine approximately 7,809 acres of coal interests and the right to utilize approximately 15,168 acres of surface interests. In addition, Coyote Creek Mine owns in fee 160 acres of surface interests and has four easements to conduct coal mining operations on approximately 352 acres.
The reserves are located in Mercer County, North Dakota, starting approximately six miles southwest of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 110 miles northwest of the Coyote Creek Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Navajo Mine - Bisti Fuels Company, LLC
In January 2017, Bisti became the contract miner at Navajo Transitional Energy Company's existing mine and anticipates making annual coal deliveries of between 5.0 million to 6.0 million tons when the Four Corners Generating Station supplied by Bisti is operating at anticipated levels.
8
The Navajo Mine, operated by Bisti, is located approximately 25 miles southwest of Farmington, New Mexico, off Indian Service Road 3005, and is on the Navajo Nation. Access to the Navajo Mine is by means of a paved road. Bisti has no title, claim, lease or option to acquire any of the reserves at Navajo Mine. The Navajo Nation controls all of the reserves within the Navajo Mine.
Consolidated Mines
Red Hills Mine — Mississippi Lignite Mining Company
The Red Hills Mine started delivering coal in 2000. The Red Hills Mine generally produces approximately 3 million to 4 million tons of lignite coal annually when its customer's Red Hills Power Plant is operating at anticipated levels.
The Red Hills Mine, operated by MLMC, is located approximately 120 miles northeast of Jackson, Mississippi. The entrance to the mine is by means of a paved road located approximately one mile west of Highway 9. MLMC owns in fee approximately 4,590 acres of surface interest and 2,979 acres of coal interests. MLMC holds leases granting the right to mine approximately 7,245 acres of coal interests and the right to utilize approximately 6,462 acres of surface interests. MLMC holds subleases under which it has the right to mine approximately 308 acres of coal interests. The majority of the leases held by MLMC were originally acquired during the mid-1970s to the early 1980s with terms extending 50 years, many of which can be further extended by the continuation of mining operations.
The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that outcrops/subcrops along the margin of the Mississippi Embayment. The potentially exploitable tertiary lignites in Mississippi are found in the Wilcox Group. The outcropping Wilcox is composed predominately of non-marine sediments deposited on a broad flat plain.
Centennial Natural Resources
Centennial ceased active mining operations at the end of 2015. Centennial's mines are located about 12 miles east and southeast of the city of Jasper in Walker County, Alabama, about 20 miles southeast of the city of Jasper in Jefferson County, Alabama, and about 15 miles northwest of the City of Jasper in Winston County, Alabama. The main entrances to the Walker County, Alabama mines are accessed by means of a half-mile graveled road extending south off Sipsey Road and a half-mile graveled road extending west off Cordova Gorgas Road. The main entrance to the Jefferson County, Alabama mine is accessed by means of a three-mile paved section of Porter Road extending south off Snowville - Brent Road. The main entrance to the Winston County, Alabama mine is accessed by means of a quarter-mile gravel road extending west off County Road 21. The reserves within the Centennial mines are controlled by Centennial.
Centennial and its affiliate, North American Coal Royalty Company, own in fee approximately 5,602 acres of coal interests and approximately 2,523 acres of surface interests in Alabama. Centennial holds leases in Alabama granting the right to mine approximately 14,932 acres of coal interests and the right to utilize approximately 18,783 acres of surface interests. The majority of the leases held by Centennial were originally acquired between 2000 and 2012 with terms that can be extended by the continuation of mining and reclamation.
Structurally, the reserves for the Centennial mines are located within the Black Warrior Coal Basin. The strata that underlies and outcrops in this region is of the Pottsville Formation of the Pennsylvanian Age. The Black Warrior Basin is the southernmost of a series of Pennsylvanian basins of the Appalachian Plateau. The Pottsville Formation in this area consists of thin to thick bedded sandstones, siltstones, shales, clays and coal seams. This sequence of clastic sediments is representative of a deltaic depositional environment. Structurally, the Black Warrior Basin is formed by a large gentle syncline that extends from north-central Mississippi in the west to north-central Alabama in the east. The syncline is tilted southwestward with a regional dip of 30 to 200 feet per mile. Toward the interior of the Black Warrior Basin, the regional southwest dip of Pottsville strata is modified by a series of three synclines and two anticlines. Of these, the major structural areas are the Warrior and Coalburg synclines, and the Sequatchie anticline. The fold axes are parallel to the Appalachian system in a northeast-southwest direction and plunge to the southwest with the regional dip.
9
North American Mining Operations
NAM maintains and operates draglines to mine limerock at the following quarries in Florida pursuant to mining services agreements with the quarry owners:
|
Quarry Name
|
Location
|
Quarry Owner
|
Year NACoal Started Dragline Operations
|
|
White Rock Quarry — North
|
Miami
|
WRQ
|
1995
|
|
Krome Quarry
|
Miami
|
Cemex
|
2003
|
|
Alico Quarry
|
Ft. Myers
|
Cemex
|
2004
|
|
FEC Quarry
|
Miami
|
Cemex
|
2005
|
|
White Rock Quarry — South
|
Miami
|
WRQ
|
2005
|
|
SCL Quarry
|
Miami
|
Cemex
|
2006
|
|
Central State Aggregates Quarry
|
Zephyrhills
|
McDonald Group
|
2016
|
|
Mid Coast Aggregates Quarry
|
Sumter County
|
McDonald Group
|
2016
|
|
West Florida Aggregates Quarry
|
Hernando County
|
McDonald Group
|
2016
|
|
St. Catherine Quarry
|
Sumter County
|
Cemex
|
2016
|
|
Center Hill Quarry
|
Sumter County
|
Cemex
|
2016
|
|
Inglis Quarry
|
Crystal River
|
Cemex
|
2016
|
White Rock Quarries ("WRQ"), Cemex and McDonald Group control all of the limerock reserves within their respective quarries.
Access to the White Rock Quarry is by means of a paved road from 122nd Avenue and access to the Krome Quarry is by means of a paved road from Krome Avenue. Access to the FEC Quarry is by means of a paved road from NW 118th Avenue and access to the Alico Quarry is by means of a paved road from Alico Road. Access to the SCL Quarry is by means of a paved road from NW 137th Avenue.
Access to the Central State Aggregates Quarry is by means of a paved road from Yonkers Boulevard and access to the Mid Coast Aggregates Quarry is by means of a paved road from State Road 50. Access to the West Florida Quarry is by means of a paved road from Cortez Boulevard and access to the St. Catherine Quarry is by means of a paved road from County Road 673. Access to the Center Hill Quarry is by means of a paved road from West Kings Highway and access to the Inglis Quarry is by means of a paved road from Highway 19 South.
NAM has no title, claim, lease or option to acquire any of the reserves at any of the limerock quarries where it provides mining services.
North American Coal Royalty Company
No operating mines currently exist on the undeveloped reserves in Alabama, Mississippi, North Dakota, Ohio and Texas. North American Coal Royalty Company receives certain royalty payments from third parties for production or advance royalty payments for oil and gas, as well as for coal reserves located in Alabama, Louisiana, Mississippi, North Dakota, Ohio, Pennsylvania and Texas.
General Information about the Mines
Leases
. The leases held by Coteau, Coyote Creek, Falkirk and MLMC have a variety of continuation provisions, but generally permit the leases to be continued beyond their fixed terms. Centennial holds the mining rights to the reserves within its mines through fee ownership, and leases and licenses from the coal and surface owners. NACoal expects coal will be available to meet customers' future production requirements utilizing land and reserves that are currently owned or leased or accessible through ownership acquisition or new leases.
Previous Operators
. There were no previous operators of the Freedom Mine, Falkirk Mine, South Hallsville No. 1 Mine, Five Forks Mine, Marshall Mine, Eagle Pass Mine, Liberty Mine, Coyote Creek Mine or Red Hills Mine. In January 2017, Bisti became the operator of NTEC's Navajo Mine, which was previously operated by a third party.
10
Exploration and Development
. All mines are well past the exploration stage. With the exception of Centennial, which ceased production as of December 31, 2015, additional pit development is under way at each mine. Drilling programs are routinely conducted for the purpose of refining guidance related to ongoing operations. For example, at the Red Hills Mine, the lignite coal reserve has been defined by a drilling program that is designed to provide 500-foot spaced drill holes for areas anticipated to be mined within six years of the current pit. Drilling beyond the six-year horizon ranges from 1,000 to 2,000-foot centers. Drilling is conducted annually to stay current with the advance of mining operations. Geological evaluation is in process at all operating locations.
Facilities and Equipment
. The facilities and equipment for each of the mines are maintained to allow for safe and efficient operation. The equipment is well maintained, in good physical condition and is either updated or replaced periodically with newer models or upgrades available to keep up with modern technology. As equipment wears out, the mines evaluate what
replacement option will be the most cost-efficient, including the evaluation of both new and used equipment, and proceed with that replacement. The majority of electrical power for the draglines, shovels, coal crushers, coal conveyors and facilities generally is provided by the power generation customer for the applicable mine. Electrical power for the Sabine facilities is provided by Upshur Rural Electric Co-op. Electrical power for the Sabine draglines is provided by the Pirkey Power Plant. The remainder of the equipment generally is powered by diesel fuel or gasoline.
The total cost of the property, plant and equipment, net of applicable accumulated amortization, depreciation and impairment as of
December 31, 2016
is set forth in the chart below:
|
Mine
|
Total Historical Cost of Mine
Property, Plant and Equipment
(excluding Coal Land, Real Estate
and Construction in Progress), Net of
Applicable Accumulated
Amortization, Depreciation and Impairment
|
|||
|
|
(
in millions)
|
|||
|
Unconsolidated Mining Operations
|
|
|||
|
Freedom Mine — The Coteau Properties Company
|
$
|
199.2
|
|
|
|
Falkirk Mine — The Falkirk Mining Company
|
$
|
87.5
|
|
|
|
South Hallsville No. 1 Mine — The Sabine Mining Company
|
$
|
162.5
|
|
|
|
Five Forks Mine — Demery Resources Company, LLC
|
$
|
—
|
|
|
|
Marshall Mine — Caddo Creek Resources Company, LLC
|
$
|
—
|
|
|
|
Eagle Pass Mine — Camino Real Fuels, LLC
|
$
|
—
|
|
|
|
Liberty Mine — Liberty Fuels Company, LLC
|
$
|
17.0
|
|
|
|
Coyote Creek Mine — Coyote Creek Mining Company, LLC
|
$
|
177.2
|
|
|
|
Navajo Mine — Bisti Fuels Company, LLC
|
$
|
—
|
|
|
|
North American Mining Operations
|
$
|
—
|
|
|
|
Consolidated Mining Operations
|
||||
|
Red Hills Mine — Mississippi Lignite Mining Company
|
$
|
60.6
|
|
|
|
Centennial (a)
|
$
|
0.1
|
|
|
|
North American Mining Operations
|
$
|
3.0
|
|
|
(a)
Does not include Centennial's remaining mine machinery and equipment that is included in "Assets held for sale" on the Consolidated Balance Sheet at December 31, 2016.
See Note 3
to the Consolidated Financial Statements for further discussion of assets held for sale.
Predominantly all of Bisti, Caddo Creek, Camino Real, Demery and Liberty's machinery and equipment is owned by NACoal’s customers. A substantial portion of MLMC’s machinery, trucks and equipment is rented under operating leases and a dragline currently in Alabama is under a capital lease. All other draglines were purchased used and have been or are expected to be updated with much of the latest technology.
11
Government Regulation
NACoal’s coal mining operations and dragline mining services are subject to various federal, state and local laws and regulations on matters such as employee health and safety, and certain environmental laws relating to, among others, the reclamation and restoration of properties after mining operations, air pollution, water pollution, the disposal of wastes and effects on groundwater. In addition, the electric power generation industry is subject to extensive regulation regarding the environmental impact of its power generation activities that could affect demand for coal from NACoal’s coal mining operations.
Numerous governmental permits and approvals are required for coal mining operations. NACoal or one of its subsidiaries holds or will hold the necessary permits at all of NACoal’s coal mining operations except Demery, Caddo Creek, Bisti and Camino Real, where NACoal’s customers hold the permits, and Centennial, where a coal reserve owner and a contract miner hold certain permits. The Company believes, based upon present information provided to it by these third-party mine permit holders, that these third parties have all permits necessary for NACoal to operate Centennial, Caddo Creek, Demery, Bisti and Camino Real; however, the Company cannot be certain that these third parties will be able to maintain all such permits in the future.
At the coal mining operations where NACoal holds the permits, NACoal is required to prepare and present to federal, state or local governmental authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment and public and employee health and safety.
The limerock quarries where NACoal provides dragline mining services are owned and operated by NACoal’s customers.
Some laws, as discussed below, place many requirements on NACoal’s coal mining operations and the limerock quarries where NACoal provides dragline mining services. Federal and state regulations require regular monitoring of NACoal’s operations to ensure compliance.
Mine Health and Safety Laws
The Federal Mine Safety and Health Act of 1977 imposes safety and health standards on all coal mining operations. Regulations are comprehensive and affect numerous aspects of mining operations, including training of mine personnel, mining procedures, blasting, the equipment used in mining operations and other matters. The Federal Mine Safety and Health Administration enforces compliance with these federal laws and regulations.
Environmental Laws
NACoal’s coal mining operations are subject to various federal environmental laws, as amended, including:
|
•
|
the Surface Mining Control and Reclamation Act of 1977 (“SMCRA”);
|
|
•
|
the Clean Air Act, including amendments to that act in 1990 (“CAA”);
|
|
•
|
the Clean Water Act of 1972 (the “Clean Water Act”);
|
|
•
|
the Resource Conservation and Recovery Act; and
|
|
•
|
the Comprehensive Environmental Response, Compensation and Liability Act.
|
In addition to these federal environmental laws, various states have enacted environmental laws that provide for higher levels of environmental compliance than similar federal laws. These state environmental laws require reporting, permitting and/or approval of many aspects of coal mining operations. Both federal and state inspectors regularly visit mines to enforce compliance. NACoal has ongoing training, compliance and permitting programs to ensure compliance with such environmental laws.
Surface Mining Control and Reclamation Act
SMCRA establishes mining, environmental protection and reclamation standards for all aspects of surface coal mining operations. Where state regulatory agencies have adopted federal mining programs under SMCRA, the state becomes the primary regulatory authority. All of the states where NACoal has active coal mining operations have achieved primary control of enforcement through federal authorization under SMCRA.
Coal mine operators must obtain SMCRA permits and permit renewals for coal mining operations from the applicable regulatory agency. These SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, protection of the hydrologic balance, surface drainage control, mine drainage and mine discharge control and treatment, and revegetation.
12
Although NACoal’s permits have stated expiration dates, SMCRA provides for a right of successive renewal. The cost of obtaining surface mining permits can vary widely depending on the quantity and type of information that must be provided to obtain the permits; however, the cost of obtaining a permit is usually between $1,000,000 and $5,000,000, and the cost of obtaining a permit renewal is usually between $15,000 and $100,000.
The Abandoned Mine Land Fund, which is part of SMCRA, imposes a fee on certain coal mining operations. The proceeds are used principally to reclaim mine lands closed prior to 1977. In addition, the Abandoned Mine Land Fund also makes transfers annually to the United Mine Workers of America Combined Benefit Fund (the “Fund”), which provides health care benefits to retired coal miners who are beneficiaries of the Fund. The fee is currently $0.08 per ton on lignite coal produced and $0.28 per ton on other surface-mined coal.
SMCRA establishes operational, reclamation and closure standards for surface coal mines. The Company accrues for the costs of current mine disturbance and final mine closure, including the cost of treating mine water discharges, where necessary. These obligations are unfunded with the exception of the final mine closure costs for the Coyote Creek Mine, which will be funded throughout the production stage.
SMCRA stipulates compliance with many other major environmental programs, including the CAA and Clean Water Act. The U.S. Army Corps of Engineers regulates activities affecting navigable waters, and the U.S. Bureau of Alcohol, Tobacco and Firearms regulates the use of explosives for blasting. In addition, the U.S. Environmental Protection Agency (the “EPA”), the U.S. Army Corps of Engineers and the Office of Surface Mining Reclamation and Enforcement ("OSM") are engaged in a series of rulemakings and other administrative actions under the Clean Water Act and other statutes that are directed at reducing the impact of coal mining operations on water bodies. Currently, these initiatives are primarily with respect to mining operations in the Appalachian region, especially on mountaintops.
The Company does not believe there is any significant risk to NACoal’s ability to maintain its existing mining permits or its ability to acquire future mining permits for its mines.
Clean Air Act and Clean Power Plan ("CPP")
The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including sulfur dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA and the corresponding state laws that extensively regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations occur through CAA permitting requirements and/or emission control requirements relating to air contaminants, especially particulate matter. Indirect impacts on coal mining operations occur through regulation of the air emissions of sulfur dioxide, nitrogen oxides, mercury, particulate matter and other compounds emitted by coal-fired power plants. The EPA has promulgated or proposed regulations that impose tighter emission restrictions in a number of areas, some of which are currently subject to litigation. The general effect of tighter restrictions could be to reduce demand for coal. Any reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business, financial condition and results of operations.
States are required to submit to the EPA revisions to their state implementation plans ("SIPs") that demonstrate the manner in which the states will attain national ambient air quality standards ("NAAQS") every time a NAAQS is issued or revised by the EPA. The EPA has adopted NAAQS for several pollutants, which continue to be reviewed periodically for revisions. When the EPA adopts new, more stringent NAAQS for a pollutant, some states have to change their existing SIPs. If a state fails to revise its SIP and obtain EPA approval, the EPA may adopt regulations to effect the revision. Coal mining operations and coal-fired power plants that emit particulate matter or other specified material are, therefore, affected by changes in the SIPs. Through this process over the last few years, the EPA has reduced the NAAQS for particulate matter, ozone, and nitrogen oxides. NACoal’s coal mining operations and power generation customers may be directly affected when the revisions to the SIPs are made and incorporate new NAAQS for sulfur dioxide, nitrogen oxides, ozone and particulate matter. In response to a court remand of earlier rules to control the regional dispersion of sulfur dioxide and nitrogen oxides from coal-fired power plants and their impacts of downwind NAAQS areas, in mid-2011, the EPA finalized the Cross-State Air Pollution Rule ("CSAPR") to address interstate transport of pollutants. This affects states in the eastern half of the U.S. and Texas. This rule imposes additional emission restrictions on coal-fired power plants to attain ozone and fine particulate NAAQS. On August 21, 2012, the U.S. Court of Appeals struck down the CSAPR rule, effectively eliminating the new additional emission restrictions. The EPA subsequently appealed to the U.S. Supreme Court, which overturned the lower court ruling on April 29, 2014. The EPA began implementation of the rule January 1, 2015, when Phase I emission reductions in sulfur dioxide and nitrogen dioxide became effective. Phase II reductions became effective on January 1, 2017. On October 26, 2016, the EPA finalized an update to the CSAPR, which included additional reductions in nitrogen oxide emissions. Some questions regarding the rule remain unresolved and additional litigation is pending.
13
The CAA Acid Rain Control Provisions were promulgated as part of the CAA Amendments of 1990 in Title IV of the CAA (“Acid Rain Program”). The Acid Rain Program required reductions of sulfur dioxide emissions from coal-fired power plants. The Acid Rain Program is now a mature program, and the Company believes that any market impacts of the required controls have likely been factored into the coal market.
The EPA promulgated a regional haze program designed to protect and to improve visibility at and around Class I Areas, which are generally National Parks, National Wilderness Areas and International Parks. This program may restrict the construction of new coal-fired power plants, the operation of which may impair visibility at and around the Class I Areas. Additionally, the program requires certain existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxide and particulate matter. States were required to submit Regional Haze SIPs to the EPA by December 2007; however, many states did not meet that deadline. The EPA and the States are currently in litigation to resolve questions regarding the stringency and timing of SIPs.
Under the CAA, new and modified sources of air pollution must meet certain new source standards (the “New Source Review Program”). In the late 1990s, the EPA filed lawsuits against owners of many coal-fired power plants in the eastern U.S. alleging that the owners performed non-routine maintenance, causing increased emissions that should have triggered the application of these new source standards. Some of these lawsuits have been settled with the owners agreeing to install additional emission control devices in their coal-fired power plants. The remaining litigation and the uncertainty around the New Source Review Program rules could adversely impact demand for coal. Regardless of the outcome of litigation on either rule, stricter controls on emissions of sulfur dioxide, nitrogen oxide and mercury are likely. Any such controls may have an adverse impact on the demand for coal, which may have a material adverse effect on the Company’s business, financial condition or results of operations.
Under the CAA, the EPA also adopts national emission standards for hazardous air pollutants. In December 2011, the EPA adopted a final rule called the Mercury and Air Toxics Standard (“MATS”), which applies to new and existing coal-fired and oil-fired units. This rule requires mercury emission reductions in fine particulates, which are being regulated as a surrogate for certain metals. In Michigan vs. Environmental Protection Agency, the U.S. Circuit Court of Appeals for the District of Columbia affirmed MATS, and that ruling was appealed. On June 29, 2015, the U.S. Supreme Court remanded the rule back to the Circuit Court, directing it to address deficiencies in the EPA’s MATS cost-benefit analysis. The Circuit Court directed the EPA to re-evaluate costs and benefits associated with the rule. On April 25, 2016, the EPA published a final supplemental finding that consideration of costs does not alter the agency's original conclusion to regulate mercury and other air toxics through this rule.
NACoal’s power generation customers must incur substantial costs to control emissions to meet all of the CAA requirements, including the requirements under MATS and the EPA's regional haze program. These costs could raise the price of coal-generated electricity, making coal-fired power less competitive with other sources of electricity, thereby reducing demand for coal. In addition, NACoal's power generation customers may choose to close coal-fired generation units or to postpone or cancel plans to add new capacity, in light of these costs and the limited time available for compliance with the requirements and the prospects of the imposition of additional future requirements on emissions from coal-fired units. If NACoal's customers cannot offset the cost to control certain regulated pollutant emissions by lowering the costs of delivery of its coal on an energy equivalent basis or if NACoal's customers elect to close coal-fired units, the Company’s business, financial condition and results of operations could be materially adversely affected.
Global climate change continues to attract considerable public and scientific attention and a considerable amount of legislative and regulatory attention in the United States. The U.S. Congress has considered climate change legislation that would reduce greenhouse gas (“GHG”) emissions, particularly from coal combustion by power plants. Enactment of laws and passage of regulations regarding GHG emissions by the U.S. or some of its states, or other actions to limit carbon dioxide emissions, such as opposition by environmental groups to expansion or modification of coal-fired power plants, could result in electric generators switching from coal to other fuel sources.
The U.S. Congress continues to consider a variety of proposals to reduce GHG emissions from the combustion of coal and other fuels. These proposals include emission taxes, emission reductions, including “cap-and-trade” programs, and mandates or incentives to generate electricity by using renewable resources, such as wind or solar power. Some states have established programs to reduce GHG emissions. Further, governmental agencies have been providing grants or other financial incentives to entities developing or selling alternative energy sources with lower levels of GHG emissions, which may lead to more competition from those entities.
The EPA has begun to establish a GHG regulation program under the CAA by issuing a finding that the emission of six GHGs, including carbon dioxide and methane, may reasonably be anticipated to endanger public health and welfare. On June 26, 2012,
14
the U.S. Court of Appeals - DC Circuit upheld this finding. Based on this finding, in 2012 the EPA published a New Source Performance Standard for greenhouse gases, emitted from future new power plants. This was withdrawn and subsequently reissued in January 2014. On June 2, 2014, the EPA proposed new regulations limiting carbon dioxide emissions from existing power plants. On June 18, 2014, the EPA also issued a proposed carbon dioxide emission regulation for reconstructed and modified power plants, which addresses carbon dioxide emissions limits for power plants subsequent to modification. On August 3, 2015, President Obama and the EPA announced the CPP, which includes final emission guidelines for states to follow in developing plans to reduce GHG emissions from existing fossil fuel-fired electric generating units ("EGUs") as well as limits on GHG emission rates for new, modified and reconstructed EGUs. Under the CPP, nationwide carbon dioxide emissions would be reduced by 32% from 2005 levels by 2030
with
emissions reductions scheduled to be phased in between 2
022 and 2030. On February 9, 2016, the U.S. Supreme Court granted a stay of the CPP pending resolution of litigation challenging the CPP. This includes a stay on EPA requirements that states submit SIPs describing plans for restricting carbon dioxide emissions in each state. Litigation is currently ongoing. Enactment of laws and passage of regulations regarding GHG emissions by the U.S. or some of its states or other actions to limit carbon dioxide emissions, such as opposition by environmental groups to expansion or modification of coal-fired power plants, could result in electric generators reducing generation or closing coal-fired power plants and/or switching from coal to other fuel sources and could have a materially adverse effect on NACoal’s business, financial condition and results of operations.
The U.S. has not implemented the 1992 Framework Convention on Global Climate Change (“Kyoto Protocol”), which became effective for many countries on February 16, 2005. The Kyoto Protocol was intended to limit or reduce emissions of GHGs. The U.S. has not ratified the emission targets of the Kyoto Protocol or any other GHG agreement. Because the first Protocol commitment period ended in 2012, an amendment to extend the Kyoto Protocol was adopted in Doha, Qatar on December 8, 2012. The U.S. is not a signatory to the amendment. Even though the U.S. has not accepted these international GHG limiting treaties or enacted domestic legislation to control GHGs, numerous lawsuits and regulatory actions have been undertaken by states and environmental groups to try to force controls on the emission of carbon dioxide; or to prevent the construction of new coal-fired power plants. On November 11, 2014, President Obama and Chinese President Xi Jinping jointly announced each nation's intentions to limit GHG emissions. These were non-binding statements of intent. As a successor to the Kyoto Protocol, on December 12, 2015, international negotiators finalized the Paris Agreement under the United Nations Framework Convention on Climate Change (“Paris Agreement”). Unlike the Kyoto Protocol, the Paris Agreement has no binding GHG reduction mandates on signatories. Participating countries only submit a description of their intended GHG reductions, and provide periodic progress updates, with no penalties for not meeting their self-imposed targets. The Paris Agreement also includes language stating that developed countries will provide financial assistance to help developing countries meet their GHG targets and adapt to climate change, but there are no mandated contributions. Because this agreement has no legally binding GHG reduction requirements, President Obama believed it did not constitute a treaty requiring Senate ratification. He signed this as a sole executive agreement on September 3, 2016. The implementation of the Paris Agreement, or other international agreements, the regulations promulgated to date by the EPA with respect to GHG emissions or the adoption of new legislation or regulations to control GHG emissions, could have a materially adverse effect on the Company’s business, financial condition and results of operations.
Signific
ant public opposition has also been raised with respect to the proposed construction of certain new coal-fueled EGUs due to the potential for increased air emissions. Such opposition, as well as any corporate or investor policies against coal-fired EGUs, could also reduce the demand for NACoal’s coal. Further, policies limiting available financing for the development of new coal-fueled EGUs could adversely impact the global demand for coal in the future. The potential impact on NACoal of future laws, regulations or other policies or circumstances will depend upon the degree to which any such laws, regulations or other policies or circumstances
force electricity generators to diminish their reliance on coal as a fuel source. In view of the significant uncertainty surrounding each of these factors, it is not possible for us to predict reasonably the impact that any such laws, regulations or other policies may have on NACoal’s business, financial condition and results of operations. However, such impacts could have a material adverse effect on NACoal’s business, financial condition and results of operations.
The Company believes NACoal has obtained all necessary permits under the CAA at all of its coal mining operations where it is responsible for permitting and is in compliance with such permits.
Clean Water Act
The Clean Water Act affects coal mining operations by establishing in-stream water quality standards and treatment standards for waste water discharge. Permits requiring regular monitoring, reporting and performance standards govern the discharge of pollutants into water.
15
Federal and state regulations establish standards that prohibit the diminution of water quality. Waters discharged from coal mines are required to meet these standards. These federal and state requirements could require more costly water treatment and could materially adversely affect the Company’s business, financial condition and results of operations.
The Company believes NACoal has obtained all permits required under the Clean Water Act and corresponding state laws and is in compliance with such permits. In many instances, mining operations require securing Clean Water Act authorization or a permit from the U.S. Army Corps of Engineers for operations in waters of the United States.
Bellaire Corporation, a wholly owned non-operating subsidiary of the Company (“Bellaire”), is treating mine water drainage from coal refuse piles associated with two former underground coal mines in Ohio and one former underground coal mine in Pennsylvania, and is treating mine water from a former underground coal mine in Pennsylvania. Bellaire anticipates that it will need to continue these activities indefinitely and has accrued a liability of $16.2 million as of
December 31, 2016
related to these treatment operations.
In connection with Bellaire's normal permit renewal with the Pennsylvania Department of Environmental Protection ("DEP"), Bellaire was notified during 2004 that in order to obtain renewal of the permit Bellaire would be required to establish a mine water treatment trust (the "Trust"). On October 1, 2010, Bellaire executed a Post-Mining Treatment Trust Consent Order and Agreement with the DEP which established the Trust to provide a financial assurance mechanism to assure the long-term treatment of post-mining discharges. Bellaire funded the Trust with $5.0 million.
See Note 7
and
Note 10
for further information on the Trust.
Resource Conservation and Recovery Act
The Resource Conservation and Recovery Act ("RCRA") affects coal mining operations by establishing requirements for the treatment, storage and disposal of wastes, including hazardous wastes. Coal mine wastes, such as overburden and coal cleaning wastes, currently are exempted from hazardous waste management. In December 2014, the EPA finalized a rule specifying management standards for coal combustion residuals or coal ash ("CCRs") as a non-hazardous waste. These standards may raise the cost for CCR disposal at coal-fired power plants, making them less competitive, and may have an adverse impact on demand for coal.
The EPA rule exempts CCRs disposed of at mine sites and reserves any regulation thereof to the OSM. Currently, the OSM is developing rules to address the use of CCRs on coal mine sites. The outcome of these rulemakings, and any subsequent actions by EPA and OSM, could impact those NACoal operations that beneficially use CCRs. If NACoal were unable to beneficially use CCRs, its revenues for disposing of CCRs from its customers may decrease and its costs may increase due to the purchase of alternative materials for beneficial uses.
Comprehensive Environmental Response, Compensation and Liability Act
The Comprehensive Environmental Response, Compensation and Liability Act and similar state laws create liabilities for the investigation and remediation of releases of hazardous substances into the environment and for damages to natural resources. The Company must also comply with reporting requirements under the Emergency Planning and Community Right-to-Know Act and the Toxic Substances Control Act.
From time to time, the Company has been the subject of administrative proceedings, litigation and investigations relating to environmental matters.
The extent of the liability and the cost of complying with environmental laws cannot be predicted with certainty due to many factors, including the lack of specific information available with respect to many sites, the potential for new or changed laws and regulations, the development of new remediation technologies and the uncertainty regarding the timing of work with respect to particular sites. As a result, the Company may incur material liabilities or costs related to environmental matters in the future, and such environmental liabilities or costs could materially and adversely affect the Company’s results of operations and financial condition. In addition, there can be no assurance that changes in laws or regulations would not affect the manner in which NACoal is required to conduct its operations.
16
Competition
The coal industry competes with other sources of energy, particularly oil, gas, hydro-electric power and nuclear power. In addition, it competes with subsidized green sources of energy, such as biofuels, wind and solar. Among the factors that affect competition are the price and availability of oil and natural gas, environmental and related political considerations, the time and expenditures required to develop new energy sources, the cost of transportation, the cost of compliance with governmental regulations and the impact of federal and state energy policies. The ability of NACoal to market and develop its reserves will depend upon the interaction of these factors.
Based on industry information, NACoal believes it was one of the ten largest coal producers in the U.S. in
2016
based on total coal tons produced.
Employees
As of
December 31, 2016
, NACoal had approximately
2,000
employees, including approximately
1,700
employees at the unconsolidated mines. None of NACoal’s employees were unionized as of December 31, 2016. NACoal believes its current labor relations with employees are satisfactory.
B. Hamilton Beach Brands
General
HBB is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels
.
HBB’s products are marketed primarily to retail merchants and wholesale distributors.
Sales and Marketing
HBB designs, markets and distributes a wide range of small electric household and specialty housewares appliances, including, but not limited to, blenders, can openers, coffeemakers, food processors, indoor electric grills, irons, mixers, slow cookers, toasters and toaster ovens. In addition, HBB designs, markets and distributes commercial products for restaurants, bars and hotels. HBB generally markets its “better” and “best” products under the Hamilton Beach
®
brand and uses the Proctor Silex
®
brand for the “good” and opening price point products. HBB successfully entered the "only-the-best" market with a licensing agreement to sell a line of counter top appliances and kitchen tools under the Wolf Gourmet
®
brand as well as the introduction of the Hamilton Beach
®
Professional brand. As a result of the 2014 Weston Brands acquisition, HBB now markets a range of game and garden food processing equipment including, but not limited to, meat grinders, bag sealers, dehydrators and meat slicers under the Weston
®
brand as well as several private label brands. HBB supplies additional private label products on a limited basis throughout North America. HBB continues to pursue other opportunities to create or add product lines and new brands that can be distributed in high-end or specialty stores and on the Internet.
HBB markets its retail products primarily in North America, but also sells products in South America, Asia and other selected markets. HBB commercial products are sold worldwide. Retail sales in North America are generated predominantly by a network of inside sales employees to mass merchandisers, e-commerce retailers, national department stores, variety store chains, drug store chains, specialty home retailers, distributors and other retail outlets. Wal-Mart accounted for approximately
32%
,
32%
and
33%
of HBB’s revenues in
2016
,
2015
and
2014
, respectively. Amazon accounted for approximately
10%
of HBB's revenues in 2016. HBB’s five largest customers accounted for approximately
54%
,
52%
and
56%
of HBB’s revenues for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The loss of or significant reduction in sales to any key customer could result in significant decreases in HBB’s revenues and profitability and its ability to sustain or grow its business.
Sales promotion activities are primarily focused on cooperative advertising. In addition, HBB promotes certain of its innovative products through the use of television, internet and print advertising. HBB also licenses certain of its trademarks to various licensees primarily for use with microwaves, compact refrigerators, cookware, kitchen tools and gadgets and full-size household vacuums.
Because of the seasonal nature of the markets for small electric appliances, HBB’s management believes backlog is not a meaningful indicator of performance and is not a significant indicator of annual sales. Backlog represents customer orders, which may be cancelled at any time prior to shipment. Backlog for HBB was approximately
$14.1 million
and
$16.0 million
at
December 31, 2016
and
2015
, respectively.
HBB’s warranty program to the consumer consists generally of a limited warranty lasting for varying periods of up to ten years for electric appliances, with the majority of products having a warranty of one year. Under its warranty program, HBB may repair or replace, at its option, those products returned under warranty.
17
The market for small electric household and specialty housewares appliances is highly seasonal in nature. Revenues and operating profit for HBB are traditionally greater in the second half of the year as sales of small electric appliances to retailers and consumers increase significantly with the fall holiday-selling season. Because of the seasonality of purchases of its products, HBB generally uses a substantial amount of cash or short-term debt to finance inventories and accounts receivable in anticipation of the fall holiday-selling season.
Patents, Trademarks, Copyrights and Licenses
HBB holds patents and trademarks registered in the U.S. and foreign countries for various products. HBB believes its business is not dependent upon any individual patent, copyright or license, but that the Hamilton Beach
®
, Proctor Silex
®
and Weston
®
trademarks are material to its business.
Product Design and Development
HBB spent
$9.7 million
,
$9.6 million
and
$9.6 million
in
2016
,
2015
and
2014
, respectively, on product design and development activities.
Key Suppliers and Raw Material
HBB’s products are supplied to its specifications by third-party suppliers located primarily in China. HBB does not maintain long-term purchase contracts with suppliers and operates mainly on a purchase order basis. HBB generally negotiates purchase orders with its foreign suppliers in U.S. dollars. A weakening of the U.S. dollar against local currencies could result in certain non-U.S. manufacturers increasing the U.S. dollar prices for future product purchases.
During
2016
, HBB purchased
98%
of its finished products from suppliers in China. HBB purchases its inventory from approximately
45
suppliers,
two
of which represented more than 10% of purchases during the year ended
December 31, 2016
. HBB believes the loss of any one supplier would not have a long-term material adverse effect on its business because there are adequate supplier choices available that can meet HBB’s production and quality requirements. However, the loss of a supplier could, in the short term, adversely affect HBB’s business until alternative supply arrangements are secured.
The principal raw materials used by HBB’s third-party suppliers to manufacture its products are plastic, glass, steel, copper, aluminum and packaging materials. HBB believes adequate quantities of raw materials are available from various suppliers.
Competition
The small electric household appliance industry does not have substantial entry barriers. As a result, HBB competes with many small manufacturers and distributors of housewares products. Based on publicly available information about the industry, HBB believes it is one of the largest full-line distributors and marketers of small electric household and specialty housewares appliances in North America based on key product categories.
Besides North America, HBB also competes to a lesser degree in Europe through its commercial product lines, and in South America and China. The competition in these geographic markets is more fragmented than in North America, and HBB is not yet a significant participant in these markets.
As brick and mortar retailers generally purchase a limited selection of small electric appliances, HBB competes with other suppliers for retail shelf space. In the e-commerce channel, HBB must compete with a broad list of competitors. HBB conducts consumer advertising for the Hamilton Beach
®
brand and the Weston
®
brand. HBB believes the principal areas of competition with respect to its products are product design and innovation, quality, price, product features, supply chain excellence, merchandising, promotion and warranty.
Government Regulation
HBB is subject to numerous federal and state health, safety and environmental regulations. HBB’s management believes the impact of expenditures to comply with such laws will not have a material adverse effect on HBB.
As a marketer and distributor of consumer products, HBB is subject to the Consumer Products Safety Act and the Federal Hazardous Substances Act, which empower the U.S. Consumer Product Safety Commission (“CPSC”) to seek to exclude products that are found to be unsafe or hazardous from the market. Under certain circumstances, the CPSC could require HBB to repair, replace or refund the purchase price of one or more of HBB’s products, or HBB may voluntarily do so.
Throughout the world, electrical appliances are subject to various mandatory and voluntary standards, including requirements in some jurisdictions that products be listed by Underwriters’ Laboratories, Inc. (“UL”) or other similar recognized laboratories. HBB also uses Intertek Testing Services for certification and testing of compliance with UL standards, as well as other nation-
18
and industry-specific standards. HBB endeavors to have its products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 Section 1502 (the "Dodd-Frank Act") requires public companies to disclose whether certain minerals, commonly known as "conflict minerals," are necessary to the functionality or production of a product manufactured by those companies and if those minerals originated in the Democratic Republic of the Congo ("DRC") or an adjoining country. The ongoing implementation of these disclosure requirements by HBB could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of certain components used in HBB's products. In addition, the supply-chain due diligence investigation required by the conflict minerals rules requires expenditures of resources and management attention, regardless of the results of the investigation.
Employees
As of
December 31, 2016
, HBB’s work force consisted of approximately
600
employees, none of whom are represented by unions except
16
hourly employees at HBB’s Picton, Ontario distribution facility. These employees are represented by an employee association which performs a consultative role on employment matters. None of HBB’s U.S. employees are unionized. HBB believes its current labor relations with both union and non-union employees are satisfactory.
C. Kitchen Collection
General
KC is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States.
Sales and Marketing
KC operated
223
retail stores as of
December 31, 2016
under the Kitchen Collection
®
store name in outlet and traditional malls throughout the United States. The stores sell kitchenware from a number of highly recognizable name-brands, including Hamilton Beach
®
and Proctor Silex
®
.
Seasonality
Revenues and operating profit for KC are traditionally greater in the second half of the year as sales to consumers increase significantly with the fall holiday-selling season. Because of the seasonality of purchases of its products, KC incurs substantial short-term debt to finance inventories in anticipation of the fall holiday-selling season.
Product Design and Development
KC, a retailer, has limited expenditures for product design and development activities.
Product Sourcing and Distribution
KC purchases all inventory centrally, which allows it to take advantage of volume purchase discounts and monitor controls over inventory and product mix. KC purchases its inventory from approximately
218
suppliers, one of which represented approximately
23%
of purchases during the year ended
December 31, 2016
. No other supplier represents more than 10% of purchases. KC believes that the loss of any one supplier would not have a long-term material adverse effect on its business because there are adequate supplier choices available that can meet KC’s requirements. However, the loss of a supplier could, in the short term, adversely affect KC’s business until alternative supply arrangements are secured.
KC currently maintains its inventory for distribution to its stores at a distribution center located near its corporate headquarters in Chillicothe, Ohio.
Competition
KC competes against a diverse group of retailers, including specialty stores, department stores, discount stores and internet and catalog retailers. The retail environment continues to be extremely competitive. Widespread Chinese sourcing of products allows many retailers to offer value-priced kitchen products. While a number of very low-end and very high-end kitchenware retailers participate in the marketplace, KC believes there is still an opportunity for stores offering mid-priced, high-quality kitchenware.
Patents, Trademarks, Copyrights and Licenses
KC holds a trademark registered in the U.S. for the Kitchen Collection
®
store name and believes that the trademark is material to its business.
19
Employees
As of
December 31, 2016
, KC’s work force consisted of approximately
1,000
employees. None of KC’s employees are unionized. KC believes its current labor relations with employees are satisfactory.
North American Coal
Termination of or default under long-term mining contracts could materially reduce the Company's profitability.
Substantially all of NACoal's profits are derived from long-term mining contracts. The contracts for certain of NACoal's unconsolidated mines permit or obligate the customer under some conditions to acquire the assets or stock of the NACoal subsidiary for an amount roughly equal to book value. If any of NACoal's long-term mining contracts were terminated or if any of its customers were to default under material contracts, profitability could be materially reduced to the extent that NACoal is unable to find alternative customers at the same level of profitability.
NACoal's unconsolidated mines are subject to risks created by changes in customer demand, inflationary adjustments and tax changes.
The contracts with the unconsolidated mines’ customers provide for reimbursement to the Company at a price based on actual costs plus an agreed upon level of compensation for the Company. This compensation is an agreed upon pre-tax profit per ton of coal sold or actual costs plus an agreed upon fee per btu of heating value sold or a management fee. During the production stage, the unconsolidated mines' customers pay the Company its agreed upon compensation only for the coal delivered to them for consumption or use. As a result, reduced coal usage by customers for any reason, including, but not limited to, fluctuations in demand due to unanticipated weather conditions, scheduled and unscheduled outages at NACoal's customers' facilities, economic conditions or governmental regulations or comparable policies which may promote dispatch of power generated by renewables, such as wind or solar, ahead of coal, could have a material adverse effect on the Company's results of operations. Because of the contractual price formulas for the sale of coal and mining services by these unconsolidated mines, the profitability of these operations is also subject to fluctuations in inflationary adjustments (or lack thereof) that can impact the agreed upon compensation paid for the coal and taxes applicable to NACoal's income on that coal. In addition, any changes in tax laws that eliminate benefits for percentage depletion would have a material adverse effect on the Company. These factors could materially reduce NACoal's profitability.
NACoal’s consolidated mining operations are subject to risks created by its capital investment in MLMC and NAM, the costs of mining and equipment costs, growing use of alternative generation that competes with coal fired generation, in addition to risks created by changes in customer demand, inflationary adjustments and tax changes.
The consolidated mining operations are comprised of MLMC, certain dragline mining services in Florida, royalties from mineral leases to other mining and oil and gas companies and other activities. The profitability of these consolidated mining operations is subject to the risk of loss of investment in these operations, changes in demand from customers, as well as increases in the cost of mining the coal and growing competition from alternative generation that competes with coal-fired generation. At MLMC, the costs of mining operations are not reimbursed by MLMC's customer. As such, increased costs at MLMC could materially reduce NACoal's profitability. In addition, MLMC sells lignite at contractually agreed upon coal prices which are subject to changes in the level of established indices over time. The price of diesel fuel is heavily-weighted among these indices. As such, a substantial decline in diesel prices could materially reduce NACoal's profitability, as the decline in revenue will only be partially offset by the effect of lower diesel prices on production costs.
NACoal's operations are subject to changes in customer demand for any reason, including, but not limited to, fluctuations in demand due to unanticipated weather conditions, the emergence of unidentified adverse mining conditions, availability of alternative fuels such as natural gas at reduced prices making coal-fueled generation less competitive with natural gas-fueled generation, regulations or comparable policies which may promote dispatch of power generated by renewables such as wind or solar ahead of coal, planned and unplanned outages at NACoal's customers' facilities, economic conditions, including economic conditions that adversely affect the demand for coal and limerock, governmental regulations, inflationary adjustments and tax risks. In addition, any changes in tax laws that eliminate benefits for percentage depletion or eliminate the expensing of exploration and development costs could have a material adverse effect on NACoal's profitability.
Mining operations are vulnerable to weather and other conditions that are beyond NACoal's control.
Many conditions beyond NACoal's control can decrease the delivery, and therefore the use, of coal to NACoal's customers. These conditions include weather, adverse mining conditions, availability of alternative fuels such as natural gas at reduced
20
prices making coal-fueled generation less competitive with natural gas-fueled generation, unexpected maintenance problems and shortages of replacement parts, which could significantly reduce the Company's profitability.
Government regulations could impose costly requirements on NACoal and its customers.
The coal mining industry and the electric generation industry are subject to extensive regulation by federal, state and local authorities on matters concerning the health and safety of employees, land use, permit and licensing requirements, air and water quality standards, plant and wildlife protection, reclamation and restoration of mining properties after mining, the discharge of GHGs and other materials into the environment, surface subsidence from underground mining and the effects that mining has on groundwater quality and availability. Legislation mandating certain benefits for current and retired coal miners also affects the industry. Mining operations require numerous governmental permits and approvals. NACoal is required to prepare and present to federal, state or local authorities data pertaining to the impact the production and combustion of coal may have upon the environment. The public, including non-governmental organizations, opposition groups and individuals, have statutory rights to comment upon and submit objections to requested permits and approvals. Compliance with these requirements is costly and time-consuming and may delay commencement or continuation of development or production. New legislation and/or regulations and orders may materially adversely affect NACoal's mining operations or its cost structure, or its customers. All of these factors could significantly reduce the Company's profitability. See “Item 1. Business — A. North American Coal — Government Regulation" on page 12 in this Form 10-K for further discussion.
NACoal is subject to burdensome federal and state mining regulations.
Federal and state statutes require NACoal to restore mine property in accordance with specified standards and an approved reclamation plan, and require that NACoal obtain and periodically renew permits for mining operations. Regulations require NACoal to incur the cost of reclaiming current mine disturbance. Although the Company believes that appropriate accruals have been recorded for all expected reclamation and other costs associated with closed mines, future profitability would be adversely affected if accruals for these costs are later determined to be insufficient or if changed conditions, including adverse judicial proceedings or revised assumptions, require a change in these reserves.
The Clean Air Act and Clean Power Plan could reduce the demand for coal.
The process of burning coal can cause many compounds and impurities in the coal to be released into the air, including carbon dioxide, sulfur dioxide, nitrogen oxides, mercury, particulates and other matter. The CAA, CPP and the corresponding state laws that extensively regulate the emissions of materials into the air affect coal mining operations both directly and indirectly. Direct impacts on coal mining operations occur through CAA permitting requirements and/or CPP emission control requirements relating to air contaminants, especially particulate matter. Indirect impacts on coal mining operations occur through regulation of the air emissions of carbon dioxide, sulfur dioxide, nitrogen oxides, mercury, particulate matter and other compounds emitted by coal-fired power plants. The EPA has promulgated or proposed regulations that impose tighter emission restrictions on a number of these compounds, some of which are currently subject to litigation. The general effect of tighter restrictions could be to reduce demand for coal. A reduction in coal’s share of the capacity for power generation could have a material adverse effect on the Company’s business, financial condition and results of operations. See “Item 1. Business — A. North American Coal — Government Regulation" on page 12 in this Form 10-K for further discussion.
NACoal is subject to the high costs and risks involved in the development of new mining projects.
From time to time, NACoal seeks to develop new mining projects. The costs and risks associated with such projects can be substantial. In addition, any changes in tax laws that eliminate the expensing of exploration and development costs will increase the after-tax cost of building a mine and make the cost of coal less competitive with other power-generation fuels.
Estimates of NACoal's recoverable coal reserves involve uncertainties, and inaccuracies in these estimates could result in lower than expected revenues, higher than expected costs, decreased profitability and asset impairments.
NACoal estimates recoverable coal reserves based on engineering and geological data assembled and analyzed by internal and, less frequently, external engineers and geologists. NACoal's estimates as to the quantity and quality of the coal in its reserves are updated annually to reflect production of coal from the reserves and new drilling, engineering or other data. These estimates depend upon a variety of factors and assumptions, many of which involve uncertainties and factors beyond NACoal's control, such as geological and mining conditions that may not be fully identified by available exploration data or that may differ from experience in current operations.
For these reasons, estimates of the recoverable quantities and qualities attributable to any particular group of properties, classifications of reserves based on risk of recovery and estimates of net cash flows expected from particular reserves may vary substantially. In addition, coal tonnage recovered from identified reserve areas or properties and revenues and expenditures
21
with respect to NACoal's reserves may vary materially from estimates. Accordingly, NACoal's estimates may vary from the actual reserves. Any inaccuracy in the reserve estimates could result in lower than expected revenues, higher than expected costs, decreased profitability and asset impairments.
Hamilton Beach Brands
HBB's business is sensitive to the strength of the North American retail markets and weakness in these markets could adversely affect its business.
The strength of the retail economy in the United States, and to a lesser degree in Canada and Mexico, has a significant impact on HBB's performance. Weakness in consumer confidence and poor financial performance by mass merchandisers,
e-commerce retailers, warehouse clubs, department stores or any of HBB's other customers could result in reduced revenues and profitability. A general slowdown in the retail sector could result in additional pricing and marketing support pressures on HBB.
The market for HBB's products is highly seasonal and dependent on consumer spending, which could result in significant variations in the Company's revenues and profitability.
Sales of HBB's products are related to consumer spending. A downturn in the general economy or a shift in consumer spending away from small electric household and specialty housewares appliances could adversely affect its business. In addition, the market for small electric household and specialty housewares appliances is highly seasonal in nature. HBB generally recognizes a substantial portion of its sales in the last half of the year as sales of small electric appliances and specialty housewares appliances to retailers and consumers increase significantly with the fall holiday-selling season. Accordingly, quarter-to-quarter comparisons of past operating results of HBB are meaningful only when comparing equivalent time periods, if at all. Any economic downturn, decrease in consumer spending or shift in consumer spending away from small electric household and specialty housewares appliances may significantly reduce revenues and profitability.
HBB is dependent on key customers and the loss of, or significant decline in business from, one or more of its key customers could materially reduce its revenues and profitability and its ability to sustain or grow its business.
HBB relies on several key customers, which is discussed under “Item 1. Business — B. Hamilton Beach Brands — Sales and Marketing" on page 17 in this Form 10-K. Although HBB has long-established relationships with many customers, it does not have any long-term supply contracts with these customers, and purchases are generally made using individual purchase orders. A loss of or significant reduction in sales to any key customer could result in significant decreases in HBB's revenues and profitability and an inability to sustain or grow its business.
HBB must receive a continuous flow of new orders from its large, high-volume retail customers; however, it may be unable to continually meet the needs of those customers. In addition, failure to obtain anticipated orders or delays or cancellations of orders or significant pressure to reduce prices from key customers could impair its ability to sustain or grow its business.
As a result of dependence on its key customers, HBB could experience a material adverse effect on its revenues and profitability if any of the following were to occur:
•
the insolvency or bankruptcy of any key customer;
•
a declining market in which customers materially reduce orders or demand lower prices; or
•
a strike or work stoppage at a key customer facility, which could affect both its suppliers and customers.
If HBB were to lose, or experience a significant decline in business from, any major retail customer or if any major retail customers were to go bankrupt, HBB might be unable to find alternate distribution outlets.
HBB depends on third-party suppliers for the manufacturing of all of its products, which subjects the Company to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
HBB is dependent on third-party suppliers for the manufacturing of all of its products. HBB's ability to select reliable suppliers who provide timely deliveries of quality products will impact its success in meeting customer demand. Any inability of HBB's suppliers to timely deliver products that meet HBB's specifications or any unanticipated changes in suppliers could be disruptive and costly to the Company. Any significant failure by HBB to obtain quality products on a timely basis at an affordable cost or any significant delays or interruptions of supply would have a material adverse effect on the Company's revenues and profitability.
22
Because HBB's suppliers are primarily based in China, international operations subject the Company to additional risks including, among others:
•
currency fluctuations;
•
labor unrest;
•
potential political, economic and social instability;
•
restrictions on transfers of funds;
•
import and export duties and quotas;
•
changes in domestic and international customs and tariffs;
•
uncertainties involving the costs to transport products;
•
long distance shipping routes dependent upon a small group of shipping and rail carriers;
•
unexpected changes in regulatory environments;
•
regulatory issues involved in dealing with foreign suppliers and in exporting and importing products;
•
protection of intellectual property;
•
difficulty in complying with a variety of foreign laws;
•
difficulty in obtaining distribution and support; and
•
potentially adverse tax consequences.
The foregoing factors could have a material adverse effect on HBB's ability to maintain or increase the supply of products, which may result in material increases in expenses and decreases in revenues and profitability.
HBB is subject to foreign currency exchange risk
A portion of HBB's revenues is derived from international operations, and HBB anticipates that a portion of sales will continue to come from outside the U.S. in the future. HBB's international revenues may be adversely affected by fluctuations in foreign currency exchange rates. A discussion of the financial impact of exchange rate fluctuations is contained in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations". Any hedging activities HBB engages in may only offset a portion of the adverse financial impact resulting from unfavorable changes in foreign currency exchange rates. HBB cannot predict with any certainty changes in foreign currency exchange rates or the degree to which HBB can mitigate these risks.
Increases in costs of products may materially reduce the Company's profitability.
Factors that are largely beyond the Company's control, such as movements in commodity prices for the raw materials needed by suppliers of HBB's products, may affect the cost of products, and HBB may not be able to pass those costs on to its customers. As an example, HBB's products require a substantial amount of plastic. Because the primary resource used in plastic is petroleum, the cost and availability of plastic varies to a great extent with the price of petroleum. When the prices of petroleum, as well as steel, aluminum and copper, increase significantly, they may materially reduce the Company's profitability.
The increasing concentration of HBB's small electric household and specialty housewares appliance sales among a few retailers and the trend toward private label brands could materially reduce revenues and profitability.
With the growing trend towards the concentration of HBB's small electric household and specialty housewares appliance sales among a few retailers, HBB is increasingly dependent upon fewer customers whose bargaining strength is growing as a result of this concentration. HBB sells a substantial quantity of products to mass merchandisers, e-commerce retailers, national department stores, variety store chains, drug store chains, specialty home retailers and other retail outlets. These retailers generally have a large selection of small electric household and specialty housewares appliance suppliers to choose from. As a result, HBB competes for retail shelf space with its competitors. In addition, certain of HBB's larger customers use their own private label brands on household appliances that compete directly with some of HBB's products. As the retailers in the small
23
electric household appliance industry become more concentrated, competition for sales to these retailers may increase, which could materially reduce the Company's revenues and profitability.
The small electric household, specialty housewares appliances and commercial appliance industry is consolidating, which could reduce HBB's ability to successfully secure product placements at key customers and limit its ability to sustain a cost competitive position in the industry.
Over the past several years, the small electric household, specialty housewares appliances and commercial appliance industry has undergone consolidation, and further consolidation is likely. As a result of this consolidation, the small electric household, specialty housewares appliances and commercial appliance industry primarily consists of a limited number of large distributors. HBB’s ability to gain or maintain share of sales in the small electric household, specialty housewares appliances and commercial appliance industry or maintain or enhance HBB’s relationships with key customers may be limited as a result of actions by competitors, including as a result of increased consolidation in the small electric household, specialty housewares appliances and commercial appliance industry.
If HBB is unable to continue to enhance existing products, as well as develop and market new products, that respond to customer needs and preferences and achieve market acceptance, the Company may experience a decrease in demand for its products, which could materially reduce revenues and profitability, which have historically benefited from sales of new products.
One of HBB’s strategic initiatives is to enhance placements through consumer-driven innovative products to generate revenue growth. HBB may not be able to compete as effectively with competitors, and ultimately satisfy the needs and preferences of customers, unless HBB can continue to enhance existing products and develop new innovative products for the markets in which HBB competes. Product development requires significant financial, technological, and other resources. Product improvements and new product introductions also require significant research, planning, design, development, engineering, and testing at the technological and product process levels and HBB may not be able to timely develop and introduce product improvements or new products. Competitors' new products may beat HBB’s products to market, be higher quality or more reliable, be more effective with more features, obtain better market acceptance, or render HBB’s products obsolete. Any new products that HBB develops may not receive market acceptance or otherwise generate any meaningful revenues or profits for the Company relative to our expectations based on, among other things, commitments to fund advertising, marketing, promotional programs and development.
HBB's inability to compete effectively with competitors in its industry, including large established companies with greater resources, could result in lost market share and decreased revenues.
The small electric household, specialty housewares appliances and commercial appliance industry does not have substantial entry barriers. As a result, HBB competes with many small manufacturers and distributors of housewares products. Additional competitors may also enter this market and cause competition to intensify. For example, some of HBB's customers have expressed interest in sourcing, or expanding the extent of sourcing, small electric household and commercial appliances directly from manufacturers in Asia. The Company believes competition is based upon several factors, including product design and innovation, quality, price, product features, merchandising, promotion and warranty. If HBB fails to compete effectively with these manufacturers and distributors, it could lose market share and experience a decrease in revenues, which would adversely affect the Company's results of operations.
HBB also competes with established companies, a number of which have substantially greater facilities, personnel, financial and other resources. In addition, HBB competes with retail customers, who use their own private label brands, and importers and foreign manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete. As a result of this competition, HBB could lose market share and revenues.
Government regulations could impose costly requirements on HBB.
The SEC adopted conflict mineral rules under Section 1502 of the Dodd-Frank Act on August 22, 2012. The rules require disclosure of the use of certain minerals, commonly known as "conflict minerals," which are mined from the DRC and adjoining countries. HBB expects that it will incur additional costs and expenses, which may be significant, to comply with these rules, including (i) due diligence to verify the sources of such conflict minerals; and (ii) any changes that HBB may make to its products, processes, or sources of supply as a result of such diligence and verification activities. Since HBB's supply chain is complex, ultimately it may not be able to designate all products as "DRC conflict free" which may adversely affect its reputation with certain customers. In such event, HBB may also face difficulties in satisfying customers who require products purchased from HBB to be "DRC conflict free". If HBB is not able to meet such requirements, customers may choose not to purchase HBB products, which could adversely affect sales and the value of portions of HBB's inventory. Further, there may be only a limited number of suppliers offering products containing only DRC conflict free parts, components and subassemblies
24
and, as a result, HBB cannot be sure that it will be able to satisfy its purchase requirements from such suppliers in sufficient quantities or at competitive prices. Any one or a combination of these various factors could harm HBB's business, and materially and adversely affect HBB's results of operations.
Kitchen Collection
The market for KC's products is highly seasonal and dependent on consumer spending, which could result in significant variations in the Company's revenues and profitability.
Sales of products sold at KC stores are subject to a number of factors related to consumer spending, including general economic conditions affecting disposable consumer income such as unemployment rates, business conditions, interest rates, levels of consumer confidence, energy prices, mortgage rates, the level of consumer debt and taxation. In addition, KC generally recognizes a substantial portion of its revenues and operating profit in the last half of the year as sales to consumers increase significantly with the fall holiday-selling season. Accordingly, any economic downturn, decrease in consumer spending or a shift in consumer spending away from KC's products could significantly reduce, or cause significant variations in, KC's revenues and profitability.
KC faces an extremely competitive specialty retail market, and such competition could result in a reduction of KC's prices and loss of market share.
The retail market is highly competitive. KC competes against a diverse group of retailers, including specialty stores, department stores, discount stores and internet and catalog retailers. Widespread sourcing of Chinese products allows many retailers to offer value-priced kitchen products. Many of KC's competitors are larger and have significantly greater financial, marketing and other resources. This competition could result in the reduction of KC product prices and a loss of market share, revenues and profitability. As consumer shopping habits change, foot traffic to traditional and outlet malls could decline and result in a loss of market share, revenues and profitability.
KC may not be able to forecast customer preferences accurately in its merchandise selections.
KC's success depends in part on its ability to anticipate the tastes of its customers and to provide merchandise that appeals to their preferences. KC's strategy requires merchandising staff to introduce products that meet current customer preferences and that are affordable and distinctive in quality and design. KC's failure to anticipate, identify or react appropriately to changes in consumer trends could cause excess inventories and higher mark-downs or a shortage of products and could harm KC's business and operating results.
KC depends on third-party suppliers for all of its products, which subjects KC to risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
KC is dependent on third-party suppliers for all of its products. KC's inability to select reliable suppliers who provide timely deliveries of quality products could reduce its success in meeting customer demand. Any inability of KC's suppliers to timely deliver products or any unanticipated changes in suppliers could be disruptive and costly to KC. The loss of a supplier could, in the short term, adversely affect KC’s business until alternative supply arrangements are secured. In addition, KC may not be able to acquire desired merchandise in sufficient quantities on acceptable terms in the future. KC's business could also be adversely affected by delays in product shipments due to freight difficulties, strikes or other difficulties at its principal transport providers. Any significant failure by KC to obtain products on a timely basis at an affordable cost or any significant delays or interruptions of supply could have a material adverse effect on KC's profitability.
NACCO
The Company may be subject to risk relating to increasing cash requirements of certain employee benefits plans, which may affect its financial position.
Although as of December 31, 2016, the Company's defined benefit pension plans are frozen and no longer provide for the accrual of future benefits, the expenses recorded for, and cash contributions required to be made to its defined benefit pension plans are dependent on changes in market interest rates and the value of plan assets, which are dependent on actual investment returns. Significant changes in market interest rates, decreases in the value of plan assets or investment losses on plan assets may require the Company to increase the cash contributed to defined benefit pension plans which may affect its financial position.
25
The Company may become subject to claims under foreign laws and regulations, which may be expensive, time consuming and distracting.
Because the Company has employees, property and business operations outside of the United States, the Company is subject to the laws and the court systems of many jurisdictions. The Company may become subject to claims outside the U.S. for violations or alleged violations of laws with respect to the current or future foreign operations of NACoal and HBB. In addition, these laws may be changed or new laws may be enacted in the future. International litigation is often expensive, time consuming and distracting. As a result, any of these risks could significantly reduce the Company's profitability and its ability to operate its businesses effectively.
The Company is dependent on key personnel and the loss of these key personnel could significantly reduce its profitability.
The Company is highly dependent on the skills, experience and services of its key personnel and the loss of key personnel could have a material adverse effect on its business, operating results and financial condition. Employment and retention of qualified personnel is important to the successful conduct of the Company's business. Therefore, the Company's success also depends upon its ability to recruit, hire, train and retain additional skilled and experienced management personnel. The Company's inability to hire and retain personnel with the requisite skills could impair its ability to manage and operate its business effectively and could significantly reduce its profitability.
The amount and frequency of dividend payments made on NACCO's common stock could change.
The Board of Directors has the power to determine the amount and frequency of the payment of dividends. Decisions regarding whether or not to pay dividends and the amount of any dividends are based on earnings, capital and future expense requirements, financial conditions, contractual limitations and other factors the Board of Directors may consider. Accordingly, holders of NACCO's common stock should not rely on past payments of dividends in a particular amount as an indication of the amount of dividends that will be paid in the future.
The Company’s business could suffer if NACCO’s information technology systems are disrupted, cease to operate effectively or if the Company experiences a security breach.
The Company relies heavily on information technology systems to operate websites; record and process transactions; respond to customer inquiries; manage inventory; purchase, sell and ship merchandise on a timely basis; and maintain cost-efficient operations. Given the significant number of transactions that are completed annually, it is vital to maintain constant operation of computer hardware and software systems and maintain cyber security. Despite the Company's cyber security efforts, the Company’s information technology systems may be vulnerable from time to time to damage or interruption from computer viruses, power outages, third-party intrusions and other technical malfunctions. If the Company’s systems are damaged, or fail to function properly, NACCO may have to make monetary investments to repair or replace the systems and could endure delays in operations.
In addition, the Company regularly evaluates information technology systems and requirements and from time to time implements modifications and/or upgrades to the information technology systems that support its businesses. Modifications include replacing existing systems with successor systems, making changes to existing systems and acquiring new systems with new functionality. There are inherent risks associated with replacing and modifying these systems, including inaccurate system information, system disruptions and user acceptance and understanding. The Company believes it is taking appropriate action to mitigate the risks through disciplined adherence to program management, testing systems and user involvement, improving the resiliency of systems, as well as securing appropriate commercial contracts with third-party vendors but there can be no assurance that the Company's actions will be successful or sufficient.
Any material disruption or slowdown of the Company’s systems, including a disruption or slowdown caused by a security breach or the Company’s failure to successfully upgrade its systems, could cause information, including data related to customer orders, to be lost or delayed. Such a loss or delay could reduce demand and cause the Company’s sales and/or profitability to decline.
Through the Company’s sales and marketing activities and its business operations, the Company collects and stores confidential information and certain personal information from its customers, vendors and employees. For example, the Company handles, collects and stores personal information in connection with its customers purchasing products or services, or otherwise communicating or interacting with the Company. The Company also accepts payments using a variety of methods, including debit and credit cards, gift cards, electronic transfer of funds and others. Although the Company has taken steps designed to safeguard such information, there can be no assurance that such information will be protected against unauthorized access, use or disclosure. Unauthorized parties may penetrate the Company’s or its vendors’ network security and, if successful, misappropriate such information. Additionally, methods to obtain unauthorized access to confidential information change frequently and may be difficult to detect, which can impact the Company’s ability to respond appropriately. The Company could be subject to liability for failure to comply with privacy and information security laws, for failing to protect personal information or for failing to respond
26
appropriately. Loss, unauthorized access to, or misuse of confidential or personal information could disrupt the Company’s operations, damage the Company’s reputation, and expose the Company to claims from customers, financial institutions, regulators, payment card associations, employees and other persons, any of which could have an adverse effect on the Company’s business, financial condition and results of operations.
Certain members of the Company's extended founding family own a substantial amount of its Class A and Class B common stock and, if they were to act in concert, could control the outcome of director elections and other stockholder votes on significant corporate actions.
The Company has two classes of common stock: Class A common stock and Class B common stock. Holders of Class A common stock are entitled to cast one vote per share and, as of December 31, 2016, accounted for approximately 25 percent of the voting power of the Company. Holders of Class B common stock are entitled to cast ten votes per share and, as of December 31, 2016, accounted for the remaining voting power of the Company. As of December 31, 2016, certain members of the Company's extended founding family held approximately 34 percent of the Company's outstanding Class A common stock and approximately 98 percent of the Company's outstanding Class B common stock. On the basis of this common stock ownership, certain members of the Company's extended founding family could have exercised 82 percent of the Company's total voting power. Although there is no voting agreement among such extended family members, in writing or otherwise, if they were to act in concert, they could control the outcome of director elections and other stockholder votes on significant corporate actions, such as certain amendments to the Company's certificate of incorporation and sales of the Company or substantially all of its assets. Because certain members of the Company's extended founding family could prevent other stockholders from exercising significant influence over significant corporate actions, the Company may be a less attractive takeover target, which could adversely affect the market price of its common stock.
None.
A. NACCO
NACCO leases office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio, which serves as its corporate headquarters.
B. NACoal
NACoal leases its corporate headquarters office space in Plano, Texas. NACoal’s proven and probable coal reserves and deposits (owned in fee or held under leases, which generally remain in effect until exhaustion of the reserves if mining is in progress) are estimated at approximately
1.9 billion
tons (including the unconsolidated mining operations), all of which are lignite coal deposits, except for approximately
86.4 million
tons of bituminous coal. Reserves are estimates of quantities of coal, made by NACoal’s geological and engineering staff, which are considered mineable in the future using existing operating methods. Developed reserves are those which have been allocated to mines which are in operation; all other reserves are classified as undeveloped. Information concerning mine type, reserve data and coal quality characteristics for NACoal’s properties are set forth on the table on pages 4 and 5 under “Item 1. Business — A. North American Coal — Sales, Marketing and Operations.”
27
C. Hamilton Beach Brands
The following table presents the principal distribution and office facilities owned or leased by HBB:
|
|
Owned/
|
|
||
|
Facility Location
|
Leased
|
Function(s)
|
||
|
Glen Allen, Virginia
|
Leased
|
Corporate headquarters
|
||
|
Geel, Belgium
|
(1)
|
Distribution center
|
||
|
Shenzhen, People's Republic of China
|
(1)
|
Distribution center
|
||
|
Mexico City, Mexico
|
Leased
|
Mexico sales and administrative headquarters
|
||
|
Olive Branch, Mississippi
|
Leased
|
Distribution center
|
||
|
Picton, Ontario, Canada
|
Leased
|
Distribution center
|
||
|
Southern Pines, North Carolina
|
Owned
|
Service center for customer returns; catalog distribution center; parts distribution center
|
||
|
Shenzhen, People's Republic of China
|
Leased
|
Administrative office
|
||
|
Markham, Ontario, Canada
|
Leased
|
Canada sales and administration headquarters
|
||
|
City of Sao Paulo, Sao Paulo, Brazil
|
Leased
|
Brazil sales and administrative headquarters
|
||
|
Jundiai, Sao Paulo, Brazil
|
(1)
|
Distribution center
|
||
|
Shanghai, People's Republic of China
|
Leased
|
Sales office
|
||
|
Shanghai, People's Republic of China
|
(1)
|
Distribution center
|
||
|
Independence, Ohio
|
Leased
|
Weston Brands sales office
|
||
|
Tultitlan, Mexico
|
(1)
|
Distribution center
|
||
|
(1)
|
This facility is not owned or leased by HBB. This facility is managed by a third-party distribution provider.
|
Sales offices are also leased in several cities in the United States, Canada, China and Mexico.
D. The Kitchen Collection
KC leases its corporate headquarters building and the KC warehouse/distribution facility in Chillicothe, Ohio. KC leases its retail stores. A typical Kitchen Collection
®
store is approximately 3,000 square feet. At
December 31, 2016
, there were
223
Kitchen Collection
®
stores.
Neither the Company nor any of its subsidiaries is a party to any material legal proceeding other than ordinary routine litigation incidental to its respective business.
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of The Dodd-Frank Act and Item 104 of Regulation S-K is included in Exhibit 95 filed with this Form
10-K.
The information under this Item is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
There exists no arrangement or understanding between any executive officer and any other person pursuant to which such executive officer was elected. Each executive officer serves until his or her successor is elected and qualified.
The following tables set forth as of March 1, 2017 the name, age, current position and principal occupation and employment during the past five years of the Company’s executive officers. Certain executive officers of the Company listed below are also executive officers for certain of NACCO's subsidiaries.
28
EXECUTIVE OFFICERS OF THE COMPANY
|
Name
|
Age
|
Current Position
|
Other Positions
|
||||
|
Alfred M. Rankin, Jr.
|
75
|
|
Chairman, President and Chief Executive Officer of NACCO (from prior to 2012), Chairman of HBB (from prior to 2012), Chairman of KC (from prior to 2012), Chairman of NACoal (from prior to 2012)
|
Chairman, President and Chief Executive Officer of Hyster-Yale Materials Handling, Inc. (from September 2012). Chairman of Hyster-Yale Group ("Hyster-Yale"), formerly NACCO Materials Handling Group, Inc. ("NMHG")(from prior to 2012).
|
|||
|
J.C. Butler, Jr.
|
56
|
|
Senior Vice President - Finance, Treasurer and Chief Administrative Officer of NACCO (from September 2012), President and Chief Executive Officer of NACoal (from July 2015), Assistant Secretary of HBB and KC (from November 2012)
|
From July 2014 to July 2015, Senior Vice President - Project Development, Administration and Mississippi Operations of NACoal. From prior to 2012 to June 2014, Senior Vice President - Project Development and Administration of NACoal. From prior to 2012 to September 2012, Vice President - Corporate Development and Treasurer of NACCO. From prior to 2012 to September 2012, Treasurer of NMHG.
|
|||
|
Elizabeth I. Loveman
|
47
|
|
Vice President and Controller (from March 2014) and Principal Financial Officer (from June 2014)
|
From December 2012 to March 2014, Director of Financial Reporting of NACCO. From prior to 2012 to November 2012, Manager of Financial Reporting of OM Group, Inc.
|
|||
|
John D. Neumann
|
41
|
|
Vice President, General Counsel and Secretary of NACCO (from September 2012), Vice President, General Counsel and Secretary of NACoal (from prior to 2012), Assistant Secretary of HBB and KC (from November 2012)
|
||||
|
Miles B. Haberer
|
50
|
|
Associate General Counsel of NACCO (from October 2012), Associate General Counsel, Assistant Secretary of NACoal (from October 2012) and President, North American Coal Royalty Company (an NACoal subsidiary) (from September 2015)
|
From October 2013 to September 2015, Director-Land of NACoal. From October 2012 to September 2015, Assistant Secretary of NACCO. From prior to 2012 to October 2012, Partner, Hunton & Williams (law firm).
|
|||
|
Mary D. Maloney
|
55
|
|
Associate General Counsel, Assistant Secretary and Senior Director - Benefits & Human Resources of NACCO (from January 1, 2014), Associate General Counsel and Assistant Secretary of NACoal (from July 1, 2016)
|
From January 1, 2014 through June 30, 2016, Senior Director - Benefits and Compensation of NACoal.
From September 2012 to December 2013, Associate General Counsel and Assistant Secretary of Hyster-Yale and NMHG. From May 2012 to September 2012, Assistant General Counsel and Assistant Secretary of Hyster-Yale. From prior to 2012 to September 2012, Assistant General Counsel and Assistant Secretary of NACCO. From prior to 2012 to September 2012, Assistant Secretary of NMHG.
|
|||
|
Jesse L. Adkins
|
34
|
|
Associate Counsel (from September 2012) and Assistant Secretary of NACCO (from November 2013), Associate Counsel (from August 2012) and Assistant Secretary (from May 2013) of NACoal
|
From prior to 2012 to August 2012, Law Clerk, NACoal.
|
|||
|
Thomas A. Maxwell
|
39
|
|
Director of Financial Planning and Analysis and Assistant Treasurer (from September 2015)
|
From January 2014 to September 2015, Senior Manager, Finance and Assistant Treasurer. From prior to 2012 to January 2014, Manager of Financial Planning and Analysis.
|
|||
29
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
A. NACOAL
|
Name
|
Age
|
Current Position
|
Other Positions
|
||||
|
Eric A. Dale
|
42
|
|
Treasurer and Senior Director, Financial Planning and Analysis, of NACoal (from January 2017)
|
From prior to 2012 to November 2016, Vice President of Financial Planning and Analysis at Westmoreland Coal Company.
|
|||
|
Carroll L. Dewing
|
60
|
|
Vice President - Operations of NACoal (from January 2017)
|
From prior to 2012 to December 2016, President, The Coteau Properties Company (an NACoal subsidiary).
From July 2014 to December 2016, Vice President - North Dakota, Texas and Florida Operations, Human Resources and External Affairs of NACoal. From October 2013 to July 2014, Director - Northern Operations of NACoal.
|
|||
|
John R. Pokorny
|
61
|
|
Controller of NACoal (from prior to 2012)
|
||||
|
J. Patrick Sullivan, Jr.
|
58
|
|
Vice President and Chief Financial Officer of NACoal (from May 2013)
|
From prior to 2012 to May 2013, Controller, Luminant Generation, Mining, Construction and Development of Energy-Future Holdings Corporation.
|
|||
|
Harry B. Tipton, III
|
59
|
|
Vice President - Engineering of NACoal (from July 2016)
|
From July 2015 to June 2016, Vice President - Engineering, and Alabama, Louisiana and Mississippi Operations of NACoal. From July 2014 to June 2015, Vice President - Engineering, and Alabama and Louisiana Operations of NACoal. From October 2013 to June 2014, Vice President - Engineering, and Alabama, Louisiana and Mississippi Operations of NACoal. From prior to 2012 to October 2013, Vice President - Engineering, and Louisiana and Mississippi Operations of NACoal.
|
|||
30
PRINCIPAL OFFICERS OF THE COMPANY’S SUBSIDIARIES
B. HBB
|
Name
|
Age
|
Current Position
|
Other Positions
|
||||
|
Gregory H. Trepp
|
55
|
|
President and Chief Executive Officer of HBB (from prior to 2012), Chief Executive Officer of KC (from prior to 2012)
|
From November 2013 to December 2014, Interim President of KC.
|
|||
|
Keith B. Burns
|
60
|
|
Vice President, Engineering and Information Technology of HBB (from prior to 2012)
|
||||
|
D. Scott Butler
|
65
|
|
Corporate Controller (from prior to 2012)
|
||||
|
Erin M. Israel
|
40
|
|
Vice President, Marketing and Business Development(from February 2017)
|
From January 2017 to February 2017, Vice President, Business Development. From October 2012 to December 2016, Senior Director, Business Development.
|
|||
|
Richard E. Moss
|
53
|
|
Senior Director, Finance &Treasurer of HBB (from prior to 2012)
|
||||
|
Gregory E. Salyers
|
56
|
|
Senior Vice President, Global Operations of HBB (from prior to 2012)
|
||||
|
Dana B. Sykes
|
55
|
|
Vice President, General Counsel and Secretary of HBB (from September 2015)
|
From July 2014 to September 2015, Associate General Counsel, Assistant Secretary and Senior Director, Human Resources of HBB. From February 2012 to July 2014, Assistant General Counsel and Director, Human Resources of HBB. From prior to 2012 to February 2012, Assistant General Counsel of HBB.
|
|||
|
James H. Taylor
|
59
|
|
Vice President and Chief Financial Officer of HBB (from prior to 2012)
|
||||
|
R. Scott Tidey
|
52
|
|
Senior Vice President, North America Sales and Marketing of HBB (from prior to 2012)
|
||||
C. KC
|
Name
|
Age
|
Current Position
|
Other Positions
|
|||
|
Robert O. Strenski
|
60
|
President of KC (from January 2015)
|
From February 2014 to December 2014, Vice President, General Merchandise Manager of KC. From June 2013 to January 2014, General Merchandise Manager of KC. From prior to 2012 to January 2013, Vice President, Divisional Merchandise Manager, Consumables, Biglots Stores, Inc.
|
|||
|
L.J. Kennedy
|
46
|
Director of Finance, Treasurer and Secretary of KC (from September 2016)
|
From prior to 2012 to September 2016, Treasurer and Secretary of KC.
|
|||
31
NACCO's Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.” Because of transfer restrictions, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis.
The high and low sales prices for the Class A common stock and dividends per share for both classes of common stock for each quarter during the past two years are presented in the tables below:
|
|
2016
|
||||||||||
|
|
Sales Price
|
||||||||||
|
|
High
|
Low
|
Cash Dividend
|
||||||||
|
Fourth quarter
|
$
|
99.55
|
|
$
|
66.41
|
|
$
|
0.2675
|
|
||
|
Third quarter
|
$
|
70.11
|
|
$
|
53.51
|
|
$
|
0.2675
|
|
||
|
Second quarter
|
$
|
61.29
|
|
$
|
49.80
|
|
$
|
0.2675
|
|
||
|
First quarter
|
$
|
58.25
|
|
$
|
40.75
|
|
$
|
0.2625
|
|
||
|
|
2015
|
||||||||||
|
|
Sales Price
|
||||||||||
|
|
High
|
Low
|
Cash Dividend
|
||||||||
|
Fourth quarter
|
$
|
50.85
|
|
$
|
40.04
|
|
$
|
0.2625
|
|
||
|
Third quarter
|
$
|
61.70
|
|
$
|
47.26
|
|
$
|
0.2625
|
|
||
|
Second quarter
|
$
|
62.96
|
|
$
|
48.04
|
|
$
|
0.2625
|
|
||
|
First quarter
|
$
|
60.99
|
|
$
|
48.42
|
|
$
|
0.2575
|
|
||
At
December 31, 2016
, there were
728
Class A common stockholders of record and
153
Class B common stockholders of record.
See Note 18
to the Consolidated Financial Statements contained elsewhere in this Form 10-K for a discussion of the amount of NACCO's investment in subsidiaries that was restricted at
December 31, 2016
.
Sales of Unregistered Company Stock
Pursuant to the Non-Employee Directors’ Equity Compensation Plan, directors may elect to receive shares of Class A common stock in lieu of cash for up to 100% of the balance of their annual retainer, meeting attendance fees and any committee chairman's fees. In aggregate, the Company issued 12,106 shares of its Class A common stock on January 1, 2016, April 1, 2016, July 1, 2016 and October 1, 2016 for payment of a portion of the 2016 directors’ annual retainer fee. In aggregate, the Company issued 10,584 shares of its Class A common stock on January 1, 2015, April 1, 2015, July 1, 2015 and October 1, 2015 for payment of a portion of the 2015 directors’ annual retainer fee. In aggregate, the Company issued 10,318 shares of its Class A common stock on January 1, 2014, April 1, 2014, July 1, 2014 and October 1, 2014 for payment of a portion of the 2014 directors’ annual retainer fee.
In aggregate, 2,631 shares of Class A common stock were issued under voluntary elections on January 1, 2016, April 1, 2016, July 1, 2016 and October 1, 2016. In aggregate, 2,349 shares of Class A common stock were issued under voluntary elections on January 1, 2015, April 1, 2015, July 1, 2015 and October 1, 2015. In aggregate, 1,091 shares of Class A common stock were issued under voluntary elections on January 1, 2014, April 1, 2014, July 1, 2014 and October 1, 2014.
The issuances of these unregistered shares qualify as exempt transactions pursuant to Section 4(a)(2) of the Securities Act of 1933.
32
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|
Issuer Purchases of Equity Securities
(1)
|
|||||||||||||
|
Period
|
(a)
Total Number of Shares Purchased
|
(b)
Average Price Paid per Share
|
(c)
Total Number of Shares Purchased as Part of the Publicly Announced Program
|
(d)
Maximum Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased Under the Program
(1)
|
|||||||||
|
Month #1
(October 1 to 31, 2016)
|
—
|
|
$
|
—
|
|
—
|
|
$
|
43,956,174
|
|
|||
|
Month #2
(November 1 to 30, 2016)
|
—
|
|
$
|
—
|
|
—
|
|
$
|
43,956,174
|
|
|||
|
Month #3
(December 1 to 31, 2016)
|
—
|
|
$
|
—
|
|
—
|
|
$
|
43,956,174
|
|
|||
|
Total
|
—
|
|
$
|
—
|
|
—
|
|
$
|
43,956,174
|
|
|||
|
(1)
|
On May 10, 2016, the Company's Board of Directors approved the 2016 Stock Repurchase Program providing for the purchase of up to $50 million of the Company's Class A Common Stock outstanding through December 31, 2017. See
Note 13
to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's stock repurchase programs.
|
33
|
|
Year Ended December 31
|
||||||||||||||||||
|
|
2016
(1)
|
2015
|
2014
(1)
|
2013
|
2012
(2)
|
||||||||||||||
|
|
(In thousands, except per share data)
|
||||||||||||||||||
|
Operating Statement Data:
|
|
|
|
|
|
||||||||||||||
|
Revenues
|
$
|
856,438
|
|
$
|
915,860
|
|
$
|
896,782
|
|
$
|
932,666
|
|
$
|
873,364
|
|
||||
|
Operating profit (loss)
|
$
|
41,715
|
|
$
|
31,827
|
|
$
|
(66,309
|
)
|
$
|
61,336
|
|
$
|
67,642
|
|
||||
|
Income (loss) from continuing operations
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
$
|
44,450
|
|
$
|
42,163
|
|
||||
|
Discontinued operations, net of tax
(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
66,535
|
|
|||||||||
|
Net income (loss)
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
$
|
44,450
|
|
$
|
108,698
|
|
||||
|
Basic earnings (loss) per share:
|
|
|
|
|
|||||||||||||||
|
Continuing operations
|
$
|
4.34
|
|
$
|
3.14
|
|
$
|
(5.02
|
)
|
$
|
5.48
|
|
$
|
5.04
|
|
||||
|
Discontinued operations
(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
7.93
|
|
|||||||||
|
Basic earnings (loss) per share
|
$
|
4.34
|
|
$
|
3.14
|
|
$
|
(5.02
|
)
|
$
|
5.48
|
|
$
|
12.97
|
|
||||
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
||||||||||||||
|
Continuing operations
|
$
|
4.32
|
|
$
|
3.13
|
|
$
|
(5.02
|
)
|
$
|
5.47
|
|
$
|
5.02
|
|
||||
|
Discontinued operations
(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
7.90
|
|
|||||||||
|
Diluted earnings (loss) per share
|
$
|
4.32
|
|
$
|
3.13
|
|
$
|
(5.02
|
)
|
$
|
5.47
|
|
$
|
12.92
|
|
||||
|
(1)
|
During 2014, NACoal recorded a non-cash, asset impairment charge of
$105.1 million
for Centennial's long-lived asset group. Centennial ceased active mining operations at the end of 2015. During the third quarter of 2016, NACoal recorded an additional non-cash impairment charge of $17.4 million related to Centennial's assets. See
Note 10
to the Consolidated Financial Statements for further discussion of the Company's asset impairments.
|
|
(2)
|
During 2012, NACCO spun-off Hyster-Yale
Materials Handling, Inc. ("Hyster-Yale")
, a former subsidiary. The results of operations of Hyster-Yale are reflected as discontinued operations in the table above.
|
34
|
|
Year Ended December 31
|
||||||||||||||||||
|
|
2016
|
2015
|
2014
|
2013
|
2012
|
||||||||||||||
|
|
(In thousands, except per share data, share amounts and employee data)
|
||||||||||||||||||
|
Balance Sheet Data at December 31:
|
|
|
|
|
|
||||||||||||||
|
Total assets
|
$
|
668,021
|
|
$
|
655,408
|
|
$
|
770,520
|
|
$
|
809,956
|
|
$
|
776,306
|
|
||||
|
Long-term debt
|
$
|
120,295
|
|
$
|
160,113
|
|
$
|
191,431
|
|
$
|
152,431
|
|
$
|
135,448
|
|
||||
|
Stockholders' equity
|
$
|
220,293
|
|
$
|
201,138
|
|
$
|
211,474
|
|
$
|
297,780
|
|
$
|
281,331
|
|
||||
|
Cash Flow Data:
|
|
|
|
|
|
||||||||||||||
|
Provided by operating activities
(1)
|
$
|
93,935
|
|
$
|
108,002
|
|
$
|
19,799
|
|
$
|
53,065
|
|
$
|
143,014
|
|
||||
|
Used for investing activities
(1)
|
$
|
(9,817
|
)
|
$
|
(8,291
|
)
|
$
|
(74,934
|
)
|
$
|
(60,734
|
)
|
$
|
(74,237
|
)
|
||||
|
Provided by (used for) financing activities
(1)
|
$
|
(55,710
|
)
|
$
|
(108,301
|
)
|
$
|
20,979
|
|
$
|
(36,776
|
)
|
$
|
(123,433
|
)
|
||||
|
Other Data:
|
|
|
|
|
|
||||||||||||||
|
Per share data:
|
|
|
|
|
|
||||||||||||||
|
Cash dividends
(2)
|
$
|
1.0650
|
|
$
|
1.0450
|
|
$
|
1.0225
|
|
$
|
1.0000
|
|
$
|
5.3775
|
|
||||
|
Market value at December 31
|
$
|
90.55
|
|
$
|
42.20
|
|
$
|
59.36
|
|
$
|
62.19
|
|
$
|
60.69
|
|
||||
|
Stockholders' equity at December 31
|
$
|
32.50
|
|
$
|
29.42
|
|
$
|
29.23
|
|
$
|
37.83
|
|
$
|
33.68
|
|
||||
|
Actual shares outstanding at December 31
|
6.779
|
|
6.837
|
|
7.236
|
|
7.872
|
|
8.353
|
|
|||||||||
|
Basic weighted average shares outstanding
|
6.818
|
|
7.001
|
|
7.590
|
|
8.105
|
|
8.384
|
|
|||||||||
|
Diluted weighted average shares outstanding
|
6.854
|
|
7.022
|
|
7.590
|
|
8.124
|
|
8.414
|
|
|||||||||
|
Total employees at December 31
(3)
|
3,600
|
|
3,600
|
|
4,000
|
|
4,100
|
|
4,300
|
|
|||||||||
|
(1)
|
During 2012, the Company spun-off Hyster-Yale, a former subsidiary. Includes both continuing operations and discontinued operations for 2012.
|
|
(2)
|
2012 cash dividends include a one-time special cash dividend of $3.50 per share. The 25 cent dividend paid in the fourth quarter of 2012 was the first regular quarterly dividend following the spin-off of Hyster-Yale.
|
|
(3)
|
Includes employees of Weston Brands beginning in 2014, Centennial from 2012 to 2014 and the unconsolidated mines for all years presented. Excludes employees of Hyster-Yale for all years presented.
|
35
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
OVERVIEW
NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries (collectively, the “Company”) operate in the following principal industries: mining, small appliances and specialty retail. Results of operations and financial condition are discussed separately by subsidiary, which corresponds with the industry groupings.
The North American Coal Corporation and its affiliated coal companies (collectively, “NACoal”), mine coal primarily for use in power generation and provide value-added services for natural resource companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances, as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”), is a national specialty retailer of kitchenware in outlet and traditional malls throughout the United States.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities (if any). On an ongoing basis, the Company evaluates its estimates based on historical experience, actuarial valuations and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition:
Revenues are generally recognized when title transfers and risk of loss passes to the customer. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered or services are performed. Revenues at HBB are recognized when customer orders are completed and shipped. Revenues at KC are recognized at the point of sale when payment is made and customers take possession of the merchandise in stores. Reserves for discounts and returns are maintained for anticipated future claims at HBB and KC. The accounting policies used to develop these product discounts and returns include:
Product discounts:
The Company records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales. If market conditions were to decline or if competition were to increase, the Company may take actions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenues at the time the incentive is offered. If the Company's Accrued cooperative advertising balance as of December 31, 2016 were to increase by one percent, the reserve for product discounts would increase and revenues would be reduced by
$0.2 million
. The Company's past results of operations have not been materially affected by a change in the estimate of product discounts, and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
Product returns:
Products generally are not sold with the right of return. However, based on the Company's historical experience, a portion of products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of sale based on this historical experience and the limited right of return provided to certain customers. If future trends were to change significantly from those experienced in the past, incremental reductions to revenues may result based on this new experience. If the Company's estimate of average return rates as of December 31, 2016 were to increase by one percent, the reserves for product returns would increase and revenues would be reduced by
$0.1 million
. The Company's past results of operations have not been materially affected by a change in the estimate of product returns and although there can be no assurances, the Company is not aware of any circumstances that would be reasonably likely to materially change its estimates in the future.
36
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Retirement benefit plans:
The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Prior to
2014
, the Company amended the Combined Plan to freeze pension benefits for all employees, including those for certain unconsolidated mines' employees. All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans. The Company's policy is to periodically make contributions to fund the defined benefit pension plans within the range allowed by applicable regulations. The defined benefit pension plan assets consist primarily of publicly traded stocks and government and corporate bonds. There is no guarantee the actual return on the plans’ assets will equal the expected long-term rate of return on plan assets or that the plans will not incur investment losses.
The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized ratably in the market-related value of assets over three years. Expected returns for pension plans are based on fair market value for non-U.S. pension plan assets.
The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.
The basis for the selection of the discount rate for each plan is determined by matching the timing of the payment of the expected obligations under the defined benefit plans and health care plans against the corresponding yield of high-quality corporate bonds of equivalent maturities.
Changes to the estimate of any of these factors could result in a material change to the Company's pension obligation causing a related increase or decrease in reported net operating results in the period of change in the estimate. Because the
2016
assumptions are used to calculate
2017
pension expense amounts, a one percentage-point change in the expected long-term rate of return on plan assets would result in a change in pension expense for
2017
of approximately
$0.7 million
for the plans. A one percentage-point change in the discount rate would result in a change in pension expense for
2017
by approximately
$0.1 million
. A one percentage-point increase in the discount rate would have lowered the plans’ projected benefit obligation as of the end of
2016
by approximately
$6.3 million
; while a one percentage-point decrease in the discount rate would have raised the plans’ projected benefit obligation as of the end of
2016
by approximately
$7.4 million
.
See Note 15
to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's retirement benefit plans.
Self-insurance liabilities:
The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers’ compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term. Changes in any of these factors could materially change the Company's estimates for these self-insurance obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate.
Accounting for Asset Retirement Obligations:
The Company's asset retirement obligations are principally for costs to dismantle certain mining equipment at the end of the life of the mine as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. Under certain federal and state regulations, the Company is required to reclaim land disturbed as a result of mining. The Company determined the amounts of these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free
37
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
interest rate. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating results in the period of change in the estimate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation. The Company has capitalized an asset’s retirement cost as part of the cost of the related long-lived asset. These capitalized amounts are subsequently amortized to expense using a systematic and rational method.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized. Changes in any of these estimates could materially change the Company's estimates for these asset retirement obligations causing a related increase or decrease in reported net operating income in the period of change in the estimate.
See Note 7
to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's asset retirement obligations.
Inventory reserves:
The Company writes down its inventory to the lower of cost or net realizable value, which includes an estimate for obsolescence or excess inventory based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs. An impairment in value of one percent of net inventories would result in additional expense of approximately
$1.6 million
.
Allowances for doubtful accounts:
The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of its customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. An impairment in value of one percent of net accounts receivable would require an increase in the allowance for doubtful accounts and would result in additional expense of approximately
$1.2 million
.
Long-lived assets:
The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of the long-lived asset exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Centennial ceased coal production in the fourth quarter of 2015 and the Company began actively marketing Centennial's mine machinery and equipment. The Company classified these assets as held for sale during the fourth quarter of 2015 when management approved and committed to a formal plan of sale. The coal land and real estate did not meet the held-for-sale criteria and remained within property, plant and equipment as a long-lived asset.
As a result of various unfavorable conditions, including but not limited to weakness in the U.S. and global coal markets and certain asset-specific factors, the Company determined the carrying value of Centennial's coal land and real estate were not recoverable during the third quarter of 2016. The Company also conducted a review of the carrying value of Centennial's mine machinery and equipment classified as assets held for sale during the third quarter of 2016. The fair values of these assets were calculated using a combination of a market and income approach and reduced the carrying value of coal land and real estate to
zero
and assets held for sale to approximately
$5.0 million
as of September 30, 2016. The Company recognized an aggregate impairment charge of
$17.4 million
during the third quarter of 2016. The asset impairment charge was recorded as "Centennial asset impairment charge" in the Consolidated Statement of Operations during 2016 and relates exclusively to the NACoal segment.
The Company also determined that indicators of potential impairment were present during the fourth quarter of 2014 with respect to its Centennial mining operations asset group. The Company assessed the recoverability of Centennial's assets and
38
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
determined that the assets were not fully recoverable when compared to the remaining future undiscounted cash flows from these assets. As a result, the Company estimated the fair value of the asset group and the long-lived assets were written down to their estimated fair value which resulted in a non-cash asset impairment charge of
$105.1 million
in the fourth quarter of 2014. The asset impairment charge was recorded as "Centennial asset impairment charge" in the Consolidated Statement of Operations during 2014 and relates exclusively to the NACoal segment.
See
Note 10
to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's asset impairment charges.
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 law 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 of the Company.
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.
39
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
CONSOLIDATED FINANCIAL SUMMARY
Selected consolidated results of the Company and components of change by subsidiary were as follows:
|
|
Revenues
|
Operating profit (loss)
|
Net income (loss)
|
||||||||
|
2014 Consolidated results
(1)
|
$
|
896,782
|
|
$
|
(66,309
|
)
|
$
|
(38,118
|
)
|
||
|
Increase (decrease) in 2015
|
|||||||||||
|
NACoal
|
(24,704
|
)
|
89,551
|
|
56,596
|
|
|||||
|
HBB
|
61,294
|
|
(971
|
)
|
(3,395
|
)
|
|||||
|
KC (net of eliminations)
|
(17,512
|
)
|
8,348
|
|
4,903
|
|
|||||
|
NACCO and Other
|
—
|
|
1,208
|
|
1,998
|
|
|||||
|
2015 Consolidated results
|
$
|
915,860
|
|
$
|
31,827
|
|
$
|
21,984
|
|
||
|
Increase (decrease) in 2016
|
|
|
|
||||||||
|
NACoal
(1)
|
(36,917
|
)
|
5,098
|
|
2,625
|
|
|||||
|
HBB
|
(15,807
|
)
|
8,232
|
|
6,808
|
|
|||||
|
KC (net of eliminations)
|
(6,698
|
)
|
(412
|
)
|
(340
|
)
|
|||||
|
NACCO and Other
|
—
|
|
(3,030
|
)
|
(1,470
|
)
|
|||||
|
2016 Consolidated results
|
$
|
856,438
|
|
$
|
41,715
|
|
$
|
29,607
|
|
||
|
|
2016
(1)
|
2015
|
2014
(1)
|
||||||||
|
Consolidated results:
|
|
|
|
||||||||
|
Basic earnings (loss) per share:
|
$
|
4.34
|
|
$
|
3.14
|
|
$
|
(5.02
|
)
|
||
|
Diluted earnings (loss) per share:
|
$
|
4.32
|
|
$
|
3.13
|
|
$
|
(5.02
|
)
|
||
|
(1)
|
During 2014, NACoal recorded a non-cash, asset impairment charge of
$105.1 million
for Centennial's long-lived asset group. Centennial ceased active mining operations at the end of 2015. During the third quarter of 2016, NACoal recorded an additional non-cash impairment charge of $17.4 million related to Centennial's assets. See
Note 10
to the Consolidated Financial Statements for further discussion of the Company's asset impairments.
|
40
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
CONSOLIDATED INCOME TAXES
The Company’s income tax provision includes U.S. federal, state and local, and foreign income taxes. In determining the effective income tax rate, the Company analyzes various factors, including the Company’s annual earnings, taxing jurisdictions in which the earnings will be generated, the impact of state and local income taxes, the Company’s ability to use tax credits and net operating loss carryforwards, and available tax planning alternatives. Discrete items, including the effect of changes in tax laws, tax rates, certain circumstances with respect to valuation allowances or other unusual or non-recurring tax adjustments are reflected in the period in which they occur as an addition to, or reduction from, the income tax provision, rather than included in the effective income tax rate.
A reconciliation of the Company's consolidated federal statutory and effective income tax is as follows for the years ended December 31:
|
|
2016
|
2015
|
2014
|
||||||||
|
Income (loss) before income tax provision (benefit)
|
$
|
34,470
|
|
$
|
24,799
|
|
$
|
(76,573
|
)
|
||
|
Statutory taxes (benefit) at 35.0%
|
$
|
12,064
|
|
$
|
8,679
|
|
$
|
(26,801
|
)
|
||
|
Discrete items:
|
|||||||||||
|
Valuation allowances
|
2,611
|
|
3,557
|
|
5,742
|
|
|||||
|
NACoal reserves (settlements)
|
(3,012
|
)
|
551
|
|
(1,360
|
)
|
|||||
|
HBB reserves (settlements)
|
(385
|
)
|
414
|
|
(1,533
|
)
|
|||||
|
Provision to return adjustments
|
(588
|
)
|
(535
|
)
|
(867
|
)
|
|||||
|
Other, net
|
(54
|
)
|
42
|
|
(414
|
)
|
|||||
|
(1,428
|
)
|
4,029
|
|
1,568
|
|
||||||
|
Permanent items:
|
|||||||||||
|
Percentage depletion
|
(6,374
|
)
|
(8,199
|
)
|
(7,091
|
)
|
|||||
|
State income taxes
|
(737
|
)
|
(1,334
|
)
|
(6,361
|
)
|
|||||
|
Federal credits
|
566
|
|
(1,196
|
)
|
(529
|
)
|
|||||
|
Non-deductible expenses
|
1,107
|
|
787
|
|
632
|
|
|||||
|
Domestic production deduction
|
(709
|
)
|
—
|
|
(522
|
)
|
|||||
|
Foreign tax rate differential
|
(48
|
)
|
754
|
|
225
|
|
|||||
|
Other, net
|
422
|
|
(705
|
)
|
424
|
|
|||||
|
(5,773
|
)
|
(9,893
|
)
|
(13,222
|
)
|
||||||
|
Income tax provision (benefit)
|
$
|
4,863
|
|
$
|
2,815
|
|
$
|
(38,455
|
)
|
||
|
Effective income tax rate
|
14.1
|
%
|
11.4
|
%
|
50.2
|
%
|
|||||
The income tax expense (benefit) recognized in 2016, 2015 and 2014 was impacted by the mix of taxable earnings between profits at entities that benefit from percentage depletion and losses at entities with a higher effective tax rate, including losses related to Centennial.
During 2016, the Company recorded additional valuation allowances of $2.6 million for both domestic and foreign jurisdictions as realization of these assets was determined to no longer meet the “more likely than not” standard. The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods. In addition, during 2016, the Company realized a $1.4 million tax benefit related to the reversal of a reserve previously established for an uncertain tax position due to favorable resolution of a state tax matter.
The Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. A valuation allowance is required where realization is determined to no longer meet the “more likely than not” standard. The establishment of a valuation
41
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods. A significant element of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. The positive evidence considered by management included a strong earnings history (exclusive of the losses at Centennial, and more specifically the 2014 and 2016 impairment charges, that gave rise to the deferred tax asset) plus evidence indicating that the loss is an isolated one rather than a continuing condition and the Company’s future income-generating capacity and tax-planning strategies. Projected future taxable income and tax-planning strategies were given the appropriate weighting in the analysis and support the conclusion that such positive evidence was sufficient to overcome the weight of negative evidence related to a three-year cumulative loss. Management concluded that it is more likely than not that all of the U.S. Federal net deferred tax asset will be realized based upon projected future taxable income.
During 2015, NACoal recorded valuation allowances of $3.0 million, primarily in North Dakota and Alabama, and HBB recorded valuation allowances of $0.6 million in certain foreign jurisdictions, against certain net deferred tax assets as realization of these assets was determined to no longer meet the “more likely than not” standard. The tax net operating losses which comprise the North Dakota and Alabama deferred tax assets provide for a carryforward period of up to 20 years and 15 years, respectively. Partially offsetting the valuation allowance, NACoal recognized a $1.3 million tax benefit in 2015 due to the reinstatement of the Federal Research and Development Tax Credit.
During 2014, NACoal recorded a valuation allowance of $5.7 million against its Alabama state deferred tax assets as realization was determined to no longer meet the “more likely than not” standard. Partially offsetting the valuation allowance, NACoal recognized a $1.4 million discrete tax benefit resulting from the conclusion of the 2011 and 2012 U.S. federal tax return examinations and a $0.5 million favorable return to provision adjustment in 2014. In addition to the items impacting NACoal’s effective income tax rate, HBB's effective income tax rate was affected by the reversal of a $1.4 million uncertain tax position as a result of the effective settlement of certain state tax issues resulting in a discrete tax benefit.
See Note 14
to the Consolidated Financial Statements in this Form 10-K for further discussion of the Company's income taxes.
THE NORTH AMERICAN COAL CORPORATION
NACoal mines coal primarily for use in power generation and provides value-added services for natural resource companies. Coal is surface mined from NACoal's mines in North Dakota, Texas, Mississippi, Louisiana, and as of January 2017, on the Navajo Nation in New Mexico. NACoal provides value-added services such as maintaining and operating draglines for independently owned limerock quarries through its North American Mining ("NAM") division and providing ash hauling services for power plants and other facilities.
NACoal has the following operating coal mining subsidiaries: Bisti Fuels Company, LLC ("Bisti"), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Liberty Fuels Company, LLC (“Liberty”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”). Centennial Natural Resources, LLC ("Centennial"), which ceased coal production in the fourth quarter of 2015, was also a coal mining subsidiary.
NAM provides value-added services for independently owned limerock quarries and is reimbursed by its customers based on actual costs plus a management fee. The financial results for NAM are included in the consolidated mining operations or unconsolidated mining operations based on each entity's structure.
NACoal also provides coal handling, processing and drying services for a number of customers. For example, NoDak Energy Services, LLC ("NoDak"), operates and maintains a coal processing facility for a customer's power plant. North American Coal Royalty Company provides surface and mineral acquisition and lease maintenance services related to the Company's operations.
See “Item 1. Business — A. North American Coal — General" on page 2 in this Form 10-K for further discussion of NACoal's subsidiaries.
42
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
FINANCIAL REVIEW
Tons of coal sold by NACoal’s operating mines were as follows for the years ended
December 31
(in millions):
|
|
2016
|
2015
|
2014
|
|||||
|
Coteau
|
14.1
|
|
14.4
|
|
14.3
|
|
||
|
Falkirk
|
7.2
|
|
8.0
|
|
7.8
|
|
||
|
Sabine
|
4.2
|
|
3.7
|
|
4.5
|
|
||
|
Camino Real
|
1.8
|
|
0.5
|
|
—
|
|
||
|
Coyote Creek
|
1.5
|
|
—
|
|
—
|
|
||
|
Other
|
0.7
|
|
0.4
|
|
0.1
|
|
||
|
Unconsolidated mines
|
29.5
|
|
27.0
|
|
26.7
|
|
||
|
MLMC
|
3.0
|
|
3.2
|
|
2.6
|
|
||
|
Centennial
|
—
|
|
0.4
|
|
0.9
|
|
||
|
Consolidated mines
|
3.0
|
|
3.6
|
|
3.5
|
|
||
|
Total tons sold
|
32.5
|
|
30.6
|
|
30.2
|
|
||
NAM mined
26.1 million
,
20.9 million
and
21.0 million
cubic yards of limerock for the years ended
December 31, 2016
,
2015
and
2014
, respectively.
Total coal reserves were as follows at
December 31
:
|
|
2016
|
2015
|
2014
|
|||||
|
|
(in billions of tons)
|
|||||||
|
Unconsolidated mines
|
0.9
|
|
1.0
|
|
1.0
|
|
||
|
Consolidated mines
|
1.0
|
|
1.0
|
|
1.0
|
|
||
|
Total coal reserves
|
1.9
|
|
2.0
|
|
2.0
|
|
||
43
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Operating Results
The results of operations for NACoal were as follows for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenue - consolidated mines
|
$
|
104,953
|
|
$
|
140,317
|
|
$
|
161,964
|
|
||
|
Royalty and other
|
6,128
|
|
7,681
|
|
10,738
|
|
|||||
|
Revenues
|
111,081
|
|
147,998
|
|
172,702
|
|
|||||
|
Cost of sales - consolidated mines
|
96,374
|
|
156,092
|
|
174,135
|
|
|||||
|
Cost of sales - royalty and other
|
2,366
|
|
2,722
|
|
1,706
|
|
|||||
|
Total cost of sales
|
98,740
|
|
158,814
|
|
175,841
|
|
|||||
|
Gross profit (loss)
|
12,341
|
|
(10,816
|
)
|
(3,139
|
)
|
|||||
|
Earnings of unconsolidated mines
(a)
|
55,238
|
|
48,432
|
|
48,396
|
|
|||||
|
Selling, general and administrative expenses
|
41,844
|
|
36,261
|
|
32,905
|
|
|||||
|
Centennial asset impairment charge
|
17,443
|
|
—
|
|
105,119
|
|
|||||
|
Amortization of intangibles
|
2,503
|
|
2,606
|
|
3,242
|
|
|||||
|
(Gain) loss on sale of assets
|
170
|
|
(1,772
|
)
|
(6,979
|
)
|
|||||
|
Operating profit (loss)
|
5,619
|
|
521
|
|
(89,030
|
)
|
|||||
|
Interest expense
|
4,317
|
|
4,961
|
|
6,034
|
|
|||||
|
Other expense (income), net, including interest income and income from other unconsolidated affiliates
|
1,270
|
|
(2,099
|
)
|
(779
|
)
|
|||||
|
Income (loss) before income tax benefit
|
32
|
|
(2,341
|
)
|
(94,285
|
)
|
|||||
|
Income tax benefit
|
(8,212
|
)
|
(7,960
|
)
|
(43,308
|
)
|
|||||
|
Net income (loss)
|
$
|
8,244
|
|
$
|
5,619
|
|
$
|
(50,977
|
)
|
||
|
Effective income tax rate
(b)
|
n/m
|
|
n/m
|
|
n/m
|
|
|||||
(a)
See Note 19
for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.
(b)
The effective income tax rate is not meaningful in 2016, 2015 and 2014 as the income tax benefit amounts are not directly correlated to the pre-tax income in 2016, 2015 and 2014 due to the impact of discrete tax items. See further information regarding the income taxes in the Consolidated Income Taxes discussion above and
in Note 14
to the Consolidated Financial Statements.
2016
Compared with
2015
The following table identifies the components of change in revenues for
2016
compared with
2015
:
|
|
Revenues
|
||
|
2015
|
$
|
147,998
|
|
|
Increase (decrease) from:
|
|
||
|
Centennial mining operations
|
(33,875
|
)
|
|
|
Royalty and other income
|
(1,553
|
)
|
|
|
Other consolidated mining operations
|
(1,489
|
)
|
|
|
2016
|
$
|
111,081
|
|
Revenues decreased
24.9%
in
2016
compared with
2015
primarily due to the cessation of coal production at Centennial during the fourth quarter of 2015 and a decrease in royalty and other income. Additionally, increased revenues at NAM's
44
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
consolidated operations from an increase in limerock yards delivered was more than offset by a reduction in revenues at MLMC due to a lower index-based coal sales price and fewer tons sold during 2016 then in 2015.
The following table identifies the components of change in operating profit for
2016
compared with
2015
.
|
|
Operating Profit
|
||
|
2015
|
$
|
521
|
|
|
Increase (decrease) from:
|
|
||
|
Centennial mining operations
|
22,362
|
|
|
|
Centennial asset retirement obligation charge in 2015
|
7,526
|
|
|
|
Earnings of unconsolidated mines
|
6,806
|
|
|
|
Centennial asset impairment charge in 2016
|
(17,443
|
)
|
|
|
Other consolidated mining operations
|
(4,760
|
)
|
|
|
Resolution of a legal matter in Alabama in 2016
|
(3,325
|
)
|
|
|
Other selling, general and administrative expenses
|
(2,930
|
)
|
|
|
Net loss on sale of assets, primarily Centennial
|
(1,942
|
)
|
|
|
Royalty and other income
|
(1,196
|
)
|
|
|
2016
|
$
|
5,619
|
|
NACoal reported operating profit of
$5.6 million
in
2016
compared with operating profit of
$0.5 million
in
2015
. Operating profit was favorably impacted by the cessation of coal production at Centennial during the fourth quarter of 2015, which resulted in substantially lower operating costs to conduct the remaining day-to-day operations and the absence of a charge related to an increase in Centennial's asset retirement obligation. An increase in earnings of unconsolidated mines, as newer mines began or increased production, also contributed to the increase in operating profit.
These items were partially offset by an asset impairment charge at Centennial, a decrease in operating profit at the other consolidated mining operations, expense related to the resolution of a legal matter in Alabama and an increase in other selling, general and administrative expenses due to increased costs associated with land leases for the Otter Creek reserves.
See Note 10
to the Consolidated Financial Statements for further discussion of Centennial's asset impairment charge. At the other consolidated mining operations, operating results at MLMC were lower during 2016 compared with 2015 due to a lower index-based coal sales price and fewer tons sold. The decline at MLMC was partially offset by an increase in limerock yards delivered at NAM's consolidated operations during 2016 compared with 2015.
The improvement in operating profit in 2016 was offset by changes in other income and expense. NACoal recognized break-even income before taxes in 2016 compared with a loss before taxes of
$2.3 million
in 2015. During 2016, NACoal reversed an indemnification receivable related to an uncertain tax position that resulted in $2.2 million of other expense. The uncertain tax position and the indemnification receivable were initially recorded as part of the Centennial acquisition. Dividend income of $0.9 million recognized in 2015 did not recur in 2016.
The income tax benefit recognized in 2016 includes the reversal of the $2.3 million uncertain tax position discussed above related to the Centennial acquisition. In addition, the income tax benefits recognized in both 2016 and 2015 were impacted by the mix of taxable earnings between profits at entities that benefit from percentage depletion and losses at entities with higher effective income tax rates, including losses related to Centennial. Also, net income in 2015 includes the recognition of valuation allowances of $3.0 million against certain net deferred tax assets, primarily in North Dakota and Alabama, partially offset by a $1.3 million tax benefit due to the reinstatement of the Federal Research and Development Tax Credit.
NACoal recognized net income of
$8.2 million
in
2016
compared with net income of
$5.6 million
in
2015
. The change in net income was primarily due to the factors noted above.
45
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
2015
Compared with
2014
The following table identifies the components of change in revenues for
2015
compared with
2014
:
|
|
Revenues
|
||
|
2014
|
$
|
172,702
|
|
|
Increase (decrease) from:
|
|
||
|
Centennial mining operations
|
(38,352
|
)
|
|
|
Royalty and other income
|
(2,901
|
)
|
|
|
Other consolidated mining operations
|
16,549
|
|
|
|
2015
|
$
|
147,998
|
|
Revenues decreased
14.3%
in
2015
compared with
2014
as a result of a decrease in revenues at Centennial, primarily due to the cessation of coal production, partially offset by an increase in tons sold at MLMC because there were fewer outage days at the customer's power plant.
The following table identifies the components of change in operating profit for
2015
compared with
2014
.
|
|
Operating Profit
|
||
|
2014
|
$
|
(89,030
|
)
|
|
Increase (decrease) from:
|
|
||
|
Centennial long-lived asset impairment charge in 2014
|
105,119
|
|
|
|
Centennial asset retirement obligation charge in 2015
|
(7,526
|
)
|
|
|
Centennial mining operations
|
(4,347
|
)
|
|
|
Centennial earn-out change in estimate in 2014
|
(1,614
|
)
|
|
|
Gain on sale of assets
|
(5,208
|
)
|
|
|
Royalty and other income
|
(2,810
|
)
|
|
|
Other selling, general and administrative expenses
|
(2,057
|
)
|
|
|
Other consolidated mining operations
|
6,747
|
|
|
|
Reimbursement of damage to customer-owned equipment in 2014
|
1,211
|
|
|
|
Earnings of unconsolidated mines
|
36
|
|
|
|
2015
|
$
|
521
|
|
NACoal reported an operating profit of
$0.5 million
in
2015
compared with an operating loss of
$89.0 million
in
2014
. The 2014 operating loss was primarily due to the
$105.1 million
non-cash, long-lived asset impairment charge associated with Centennial. See
Note 10
to the Consolidated Financial Statements for further discussion of the Centennial long-lived asset impairment charge. Operating profit in 2015 included a
$7.5 million
charge to increase Centennial’s asset retirement obligation. The Company ceased mining operations at Centennial during the fourth quarter of 2015.
In addition to the changes related to Centennial, operating profit decreased in 2015 from 2014 primarily due to a reduction in gains on sales of assets, higher selling, general and administrative expenses due to an increase in employee-related costs and higher professional fees and reduced royalty and other income. These items were partially offset by improved operating results at the other consolidated mining operations primarily as a result of the increase in tons sold at MLMC.
NACoal recognized net income of
$5.6 million
in
2015
compared with a net loss of
$51.0 million
in
2014
. The change in net income (loss) was primarily due to the factors affecting operating profit (loss) and the absence of a $1.1 million after-tax charge recognized in 2014 to establish an allowance against a receivable from North American Coal Corporation India Private Limited's customer. In addition, net income in 2015 includes the recognition of valuation allowances of $3.0 million against certain net deferred tax assets, primarily in North Dakota and Alabama, partially offset by a $1.3 million tax benefit due to the reinstatement of the Federal Research and Development Tax Credit.
46
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except 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
:
|
|
2016
|
2015
|
Change
|
||||||||
|
Operating activities:
|
|
|
|
||||||||
|
Net income
|
$
|
8,244
|
|
$
|
5,619
|
|
$
|
2,625
|
|
||
|
Depreciation, depletion and amortization
|
12,682
|
|
17,067
|
|
(4,385
|
)
|
|||||
|
Deferred income taxes
|
16,842
|
|
(4,831
|
)
|
21,673
|
|
|||||
|
Loss (gain) on sale of assets
|
170
|
|
(1,772
|
)
|
1,942
|
|
|||||
|
Centennial asset impairment charge
|
17,443
|
|
—
|
|
17,443
|
|
|||||
|
Other
|
(838
|
)
|
1,087
|
|
(1,925
|
)
|
|||||
|
Working capital changes
|
(19,603
|
)
|
78,755
|
|
(98,358
|
)
|
|||||
|
Net cash provided by operating activities
|
34,940
|
|
95,925
|
|
(60,985
|
)
|
|||||
|
Investing activities:
|
|
|
|
||||||||
|
Expenditures for property, plant and equipment
|
(10,109
|
)
|
(4,116
|
)
|
(5,993
|
)
|
|||||
|
Proceeds from the sale of assets
|
7,983
|
|
3,418
|
|
4,565
|
|
|||||
|
Other
|
(1,790
|
)
|
(814
|
)
|
(976
|
)
|
|||||
|
Net cash used for investing activities
|
(3,916
|
)
|
(1,512
|
)
|
(2,404
|
)
|
|||||
|
Cash flow before financing activities
|
$
|
31,024
|
|
$
|
94,413
|
|
$
|
(63,389
|
)
|
||
The
$61.0 million
decrease in net cash provided by operating activities was primarily the result of unfavorable working capital changes in 2016 compared with 2015.
The change in working capital was mainly attributable to an increase in accounts receivable from affiliates during 2016 compared with a significant decrease in accounts receivable from affiliates in 2015 as NACoal received payment fr
om Coyote Creek
,
an unconsolidated mine.
A
significant decrease in accrued payroll due to payments made during 2016 also contributed to the change in working capital.
The increase in net cash cash used for investing activities was primarily attributable to an increase in expenditures for property, plant and equipment in 2016 compared with 2015. In 2016, capital expenditures were mainly for the purchase of equipment at MLMC.
|
|
2016
|
2015
|
Change
|
||||||||
|
Financing activities:
|
|
|
|
||||||||
|
Net reductions to long-term debt and revolving credit agreements
|
$
|
(22,564
|
)
|
$
|
(82,829
|
)
|
$
|
60,265
|
|
||
|
Cash dividends paid to NACCO
|
(10,200
|
)
|
—
|
|
(10,200
|
)
|
|||||
|
Other
|
—
|
|
931
|
|
(931
|
)
|
|||||
|
Net cash used for financing activities
|
$
|
(32,764
|
)
|
$
|
(81,898
|
)
|
$
|
49,134
|
|
||
The change in net cash used for financing activities was primarily due to a decrease in repayments made on NACoal's revolver in 2016 compared with 2015, partially offset by a cash dividend paid to NACCO in 2016.
47
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Financing Activities
NACoal has an unsecured revolving line of credit of up to
$225.0 million
(the “NACoal Facility”) that expires in November 2018. Borrowings outstanding under the NACoal Facility were
$80.0 million
at
December 31, 2016
. At
December 31, 2016
, the excess availability under the NACoal Facility was
$143.9 million
, which reflects a reduction for outstanding letters of credit of
$1.1 million
.
The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved. The applicable margins, effective
December 31, 2016
, for base rate and LIBOR loans were
1.00%
and
2.00%
, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was
0.35%
on the unused commitment at
December 31, 2016
. The weighted average interest rate applicable to the NACoal Facility at
December 31, 2016
was
3.39%
including the floating rate margin and the effect of the interest rate swap agreement discussed below.
To reduce the exposure to changes in the market rate of interest, NACoal has entered into an interest rate swap agreement for a portion of the NACoal Facility. Terms of the interest rate swap agreement require NACoal to receive a variable interest rate and pay a fixed interest rate. NACoal has interest rate swaps with notional values totaling
$80.0 million
at
December 31, 2016
at an average fixed interest rate of
1.4%
.
See Note 2
and
Note 9
to the Consolidated Financial Statements in this Form 10-K for further discussion of NACoal's interest rate swap agreement.
The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of
3.50 to 1.00
and an interest coverage ratio of not less than
4.00 to 1.00
. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of
3.00 to 1.00
in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of
$15.0 million
. At
December 31, 2016
, NACoal was in compliance with all covenants in the NACoal Facility.
NACoal believes funds available from cash on hand at the Company, the NACoal Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the NACoal Facility.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACoal as of
December 31, 2016
:
|
|
Payments Due by Period
|
||||||||||||||||||||||||||
|
Contractual Obligations
|
Total
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
||||||||||||||||||||
|
NACoal Facility
|
$
|
80,000
|
|
$
|
—
|
|
$
|
80,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||||
|
Variable interest payments on NACoal Facility
|
5,139
|
|
2,741
|
|
2,398
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Other debt
|
7,373
|
|
202
|
|
213
|
|
225
|
|
236
|
|
250
|
|
6,247
|
|
|||||||||||||
|
Other interest
|
3,120
|
|
388
|
|
375
|
|
342
|
|
330
|
|
317
|
|
1,368
|
|
|||||||||||||
|
Capital lease obligations, including principal and interest
|
9,270
|
|
1,732
|
|
1,591
|
|
1,952
|
|
1,105
|
|
1,084
|
|
1,806
|
|
|||||||||||||
|
Operating leases
|
12,527
|
|
4,009
|
|
2,927
|
|
1,765
|
|
1,580
|
|
1,338
|
|
908
|
|
|||||||||||||
|
Purchase and other obligations
|
29,118
|
|
29,118
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Total contractual cash obligations
|
$
|
146,547
|
|
$
|
38,190
|
|
$
|
87,504
|
|
$
|
4,284
|
|
$
|
3,251
|
|
$
|
2,989
|
|
$
|
10,329
|
|
||||||
Not included in the table above, NACoal has a long-term liability of approximately $0.6 million for unrecognized tax benefits, including interest and penalties, as of
December 31, 2016
. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its tax audits.
48
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
An event of default, as defined in the NACoal Facility and NACoal’s lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
NACoal’s variable interest payments are calculated based upon NACoal’s anticipated payment schedule and the
December 31, 2016
base rate and applicable margins, as defined in the NACoal Facility. A 1/8% increase in the base rate would increase NACoal’s estimated total annual interest payments on the NACoal Facility by approximately
$0.7 million
.
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s decisions to contribute above the minimum regulatory funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACoal does not expect to contribute to its pension plan in
2017
. NACoal maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds and expects to pay benefits of approximately
$0.8 million
in
2017
and approximately
$0.5 million
per year from 2018 through 2026. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan. NACoal also expects to make payments related to its other postretirement plans of approximately
$0.3 million
per year from 2018 through 2026. Benefit payments beyond that time cannot currently be estimated.
NACoal has a long-term liability of $23.1 million, primarily for asset retirement obligations, that is not included in the table above due to the uncertainty of the timing of payments to settle this liability.
NACoal is a party to certain guarantees related to Coyote Creek that are not included in the table above as 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 19
to the Consolidated Financial Statements for further discussion of the Company's guarantees.
Off Balance Sheet Arrangements
NACoal has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
49
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
|
Planned
|
Actual
|
Actual
|
|||||||||
|
|
2017
|
2016
|
2015
|
||||||||
|
NACoal
|
$
|
16.2
|
|
$
|
10.1
|
|
$
|
4.1
|
|
||
Planned expenditures for
2017
include mine machinery and equipment. These expenditures are expected to be funded from internally generated funds and bank borrowings.
Capital Structure
NACoal’s capital structure is presented below:
|
|
December 31
|
|
|||||||||
|
|
2016
|
2015
|
Change
|
||||||||
|
Cash and cash equivalents
|
$
|
10,978
|
|
$
|
12,718
|
|
$
|
(1,740
|
)
|
||
|
Other net tangible assets
|
145,028
|
|
159,099
|
|
(14,071
|
)
|
|||||
|
Intangible assets, net
|
45,678
|
|
48,181
|
|
(2,503
|
)
|
|||||
|
Net assets
|
201,684
|
|
219,998
|
|
(18,314
|
)
|
|||||
|
Total debt
|
(96,039
|
)
|
(111,617
|
)
|
15,578
|
|
|||||
|
Total equity
|
$
|
105,645
|
|
$
|
108,381
|
|
$
|
(2,736
|
)
|
||
|
Debt to total capitalization
|
48
|
%
|
51
|
%
|
(3
|
)%
|
|||||
The decrease in other net tangible assets was primarily due to changes in deferred taxes and assets held for sale partially offset by accrued payroll.
Total equity decreased primarily due to $10.2 million of dividends paid to NACCO during
2016
and a $0.8 million increase in accumulated other comprehensive loss, partially offset by NACoal's 2016 net income of
$8.2 million
OUTLOOK
In 2017, NACoal expects a significant increase in tons sold and income before income taxes compared with 2016, excluding the effect of the 2016 asset impairment and legal resolution charges.
Results in 2017 are expected to benefit from substantially higher income before tax from the unconsolidated mining operations due to the start of production at Bisti in early January 2017 and to a full year of income at the Coyote Creek mine. In addition, in early October 2016, NAM commenced operations at new limerock quarries for a new customer, which is also expected to contribute to the increase in income from the unconsolidated mining operations.
Bisti expects to deliver approximately 5.0 to 6.0 million tons of coal per year when the power plant supplied by its customer is operating at anticipated levels. Coyote Creek expects to deliver between 2.0 to 2.5 million tons of coal annually when its customer's power plant operates at anticipated levels. In July 2016, Liberty began delivering coal to its customer for facility testing and commissioning. Production levels at Liberty are expected to increase gradually and to build to full production of approximately 4.5 million tons of coal annually beginning in 2023, although the pace of future deliveries will be affected by the timing of the Kemper County Energy Facility reaching full operating capacity.
Income before income taxes is also expected to benefit moderately from fewer expenses related to the Otter Creek reserves and a lower, more moderate, operating loss at Centennial as it manages ongoing mine reclamation obligations.
Centennial will continue to evaluate strategies to maximize cash flow, including through the sale of mineral reserves and equipment. The company is evaluating a range of strategies for its Alabama mineral reserves, including holding reserves with substantial unmined coal tons for sale or contract mining when conditions in Alabama and global coal markets improve. Cash
50
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
expenditures related to mine reclamation will continue until reclamation is complete, or ownership of, or responsibility for, the mines is transferred.
The improvement in income before income taxes is expected to be partially offset by a significant decrease in royalty and other income as a result of lower anticipated oil and gas royalties in 2017 and a third party completing mining of company-owned reserves in Southern Ohio during 2016. Lower results from NAM's consolidated limerock mining operations due to an anticipated decline in customer requirements is also expected to partially offset improved income before income taxes. MLMC's 2017 results are expected to be comparable to 2016, with a decrease in the first half of the year expected to be offset by improvements in the second half.
Cash flow before financing activities is expected to be strong in 2017 but decrease compared with 2016. Capital expenditures are estimated to be approximately $16 million in 2017.
Over the longer-term, NACoal continues to expect that the earnings of its unconsolidated operations will increase by approximately 50% from the 2012 level of $45.2 million through the development and maturation of its newer operations and normal escalation of contractual compensation at its existing operations. Income related to NACoal's newer mines, including the commencement of production at Bisti and increased deliveries at Liberty, are expected to advance progress toward this goal in 2017 and beyond. In recent years, generally low U.S. inflation rates have slowed the rate by which fees at unconsolidated mines have escalated and some newer mines, such as Liberty, have experienced slower than anticipated growth in customer demand. As a result, achievement of the goal to increase earnings of the unconsolidated operations by 50% is currently expected to occur in 2020 or 2021, later than previously anticipated, with the timing ultimately dependent on future inflation rates and customer demand.
NACoal expects to continue its efforts to develop new mining projects and is pursuing opportunities for new or expanded coal mining projects, although future opportunities are likely to be very limited. In addition, NACoal continues to pursue additional non-coal mining opportunities, principally in aggregates.
HAMILTON BEACH BRANDS, INC.
HBB’s business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to retailers and consumers increase significantly for the fall holiday-selling season.
FINANCIAL REVIEW
Operating Results
The results of operations for HBB were as follows for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
$
|
605,170
|
|
$
|
620,977
|
|
$
|
559,683
|
|
||
|
Operating profit
|
$
|
43,033
|
|
$
|
34,801
|
|
$
|
35,772
|
|
||
|
Interest expense
|
$
|
1,165
|
|
$
|
1,831
|
|
$
|
1,137
|
|
||
|
Other expense
|
$
|
770
|
|
$
|
1,470
|
|
$
|
1,132
|
|
||
|
Net income
|
$
|
26,557
|
|
$
|
19,749
|
|
$
|
23,144
|
|
||
|
Effective income tax rate
|
35.4
|
%
|
37.3
|
%
|
30.9
|
%
|
|||||
51
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
2016
Compared with
2015
The following table identifies the components of change in revenues for
2016
compared with
2015
:
|
|
Revenues
|
||
|
2015
|
$
|
620,977
|
|
|
Increase (decrease) from:
|
|
||
|
Unit volume and product mix
|
(9,259
|
)
|
|
|
Foreign currency
|
(7,700
|
)
|
|
|
Average sales price
|
1,152
|
|
|
|
2016
|
$
|
605,170
|
|
Revenues for 2016 decreased
2.5%
compared with
2015
primarily due to decreased sales volumes, mainly in the U.S. consumer retail market, and unfavorable foreign currency movements as both the Mexican peso and Canadian dollar weakened against the U.S. dollar.
The following table identifies the components of change in operating profit for
2016
compared with
2015
:
|
|
Operating Profit
|
||
|
2015
|
$
|
34,801
|
|
|
Increase (decrease) from:
|
|
||
|
Gross profit
|
6,543
|
|
|
|
Selling, general and administrative expenses
|
2,958
|
|
|
|
Foreign currency
|
(1,269
|
)
|
|
|
2016
|
$
|
43,033
|
|
HBB's operating profit increased in
2016
compared with
2015
primarily as a result of an increase in gross profit and a decrease in Selling, general and administrative expenses, partially offset by unfavorable foreign currency movements. The increase in gross profit mainly resulted from a shift in sales mix to higher-priced and higher-margin products and lower costs, partially offset by reduced sales volumes. Selling, general and administrative expenses decreased as a result of lower professional and outside service fees, decreased advertising and marketing expenses and a reduction in environmental expenses in 2016 compared with 2015. HBB recorded
$1.5 million
in 2015 for environmental investigation and remediation at HBB's Picton, Ontario facility. These decreases in Selling, general and administrative expenses were partially offset by higher employee-related costs. Foreign currency movements were also unfavorable as the Mexican peso weakened against the U.S. dollar.
Net income increased to
$26.6 million
in
2016
compared with
$19.7 million
in
2015
primarily due to the factors affecting the change in operating profit.
52
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
2015
Compared with
2014
The following table identifies the components of change in revenues for
2015
compared with
2014
:
|
|
Revenues
|
||
|
2014
|
$
|
559,683
|
|
|
Increase (decrease) from:
|
|
||
|
Unit volume and product mix
|
53,535
|
|
|
|
Weston Brands
|
24,537
|
|
|
|
Foreign currency
|
(15,301
|
)
|
|
|
Average sales price
|
(1,477
|
)
|
|
|
2015
|
$
|
620,977
|
|
Revenues for
2015
increased
11.0%
, or
6.6%
excluding the sales from the December 16, 2014 Weston Brands acquisition, compared with 2014. Revenues increased primarily due to increased sales volumes primarily in the U.S. consumer retail market and a full year of sales from Weston Brands, partially offset by unfavorable foreign currency movements as both the Canadian dollar and Mexican peso weakened against the U.S. dollar.
The following table identifies the components of change in operating profit for
2015
compared with
2014
:
|
|
Operating Profit
|
||
|
2014
|
$
|
35,772
|
|
|
Increase (decrease) from:
|
|
||
|
Foreign currency
|
(3,799
|
)
|
|
|
Selling, general and administrative expenses
|
(700
|
)
|
|
|
Weston Brands
|
2,105
|
|
|
|
Gross profit
|
1,423
|
|
|
|
2015
|
$
|
34,801
|
|
HBB's operating profit decreased in
2015
compared with
2014
primarily as a result of unfavorable foreign currency movements and an increase in Selling, general and administrative expenses partially offset by operating profit contributed by Weston Brands and an increase in gross profit. Foreign currency movements were unfavorable as both the Mexican peso and Canadian dollar weakened against the U.S. dollar. Selling, general and administrative expenses increased as a result of higher professional and outside service fees and higher employee-related expenses partially offset by a reduction in environmental expenses in 2015 compared with 2014. HBB recorded
$1.5 million
and
$3.3 million
in 2015 and 2014, respectively, for environmental investigation and remediation at HBB's Picton, Ontario facility. The 2014 increase in environmental expense was partially offset by an
$0.8 million
reduction to HBB's environmental liability as a result of a third party's commitment to share in anticipated remediation costs at HBB's Southern Pines and Mt. Airy locations. Weston Brands' operating profit includes certain integration costs, including relocation and employee severance expenses, as well as $1.4 million in amortization expense on acquired intangibles relating to the Weston acquisition. The increase in gross profit primarily resulted from increased sales volumes partially offset by a shift in mix to products with lower margins.
Net income decreased to
$19.7 million
in
2015
compared with
$23.1 million
in
2014
primarily due to the absence of a $1.4 million discrete tax benefit recognized in 2014 and the factors affecting the change in operating profit.
53
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except 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
:
|
|
2016
|
2015
|
Change
|
||||||||
|
Operating activities:
|
|
|
|
||||||||
|
Net income
|
$
|
26,557
|
|
$
|
19,749
|
|
$
|
6,808
|
|
||
|
Depreciation and amortization
|
4,681
|
|
4,750
|
|
(69
|
)
|
|||||
|
Other
|
1,279
|
|
(2,361
|
)
|
3,640
|
|
|||||
|
Working capital changes
|
26,214
|
|
(8,197
|
)
|
34,411
|
|
|||||
|
Net cash provided by operating activities
|
58,731
|
|
13,941
|
|
44,790
|
|
|||||
|
Investing activities:
|
|
|
|
||||||||
|
Expenditures for property, plant and equipment
|
(4,814
|
)
|
(4,365
|
)
|
(449
|
)
|
|||||
|
Acquisition of business
|
—
|
|
(413
|
)
|
413
|
|
|||||
|
Other
|
26
|
|
3
|
|
23
|
|
|||||
|
Net cash used for investing activities
|
(4,788
|
)
|
(4,775
|
)
|
(13
|
)
|
|||||
|
Cash flow before financing activities
|
$
|
53,943
|
|
$
|
9,166
|
|
$
|
44,777
|
|
||
Net cash provided by operating activities increased
$44.8 million
in
2016
compared with
2015
primarily due to the change in working capital, which was largely attributable to a change in accounts payable partially offset by the change in accounts receivable. Accounts payable had a significant increase during 2016 compared with a large decrease in 2015 primarily due to a change in the timing of payments. Accounts receivable increased during 2016 compared with a decrease in 2015 attributable to a shift in the timing of sales and collections in 2016 compared with 2015.
|
|
2016
|
2015
|
Change
|
||||||||
|
Financing activities:
|
|
|
|
||||||||
|
Net additions (reductions) to revolving credit agreements
|
$
|
(19,651
|
)
|
$
|
4,912
|
|
$
|
(24,563
|
)
|
||
|
Cash dividends paid to NACCO
|
(32,000
|
)
|
(15,000
|
)
|
(17,000
|
)
|
|||||
|
Other
|
(186
|
)
|
—
|
|
(186
|
)
|
|||||
|
Net cash used for financing activities
|
$
|
(51,837
|
)
|
$
|
(10,088
|
)
|
$
|
(41,749
|
)
|
||
The change in net cash used for financing activities was primarily the result of a reduction in borrowings under the revolving credit facility in 2016 compared with an increase in borrowings in 2015, as well as an increase in cash dividends paid to NACCO in 2016.
Financing Activities
HBB has a
$115.0 million
senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in June 2021. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was
$257.2 million
as of
December 31, 2016
. At
December 31, 2016
, the borrowing base under the HBB Facility was
$113.0 million
and borrowings outstanding were
$37.9 million
. At
December 31, 2016
, the excess availability under the HBB Facility was
$75.1 million
.
The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact
54
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate, LIBOR or bankers' acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective
December 31, 2016
, for base rate loans and LIBOR loans denominated in U.S. dollars were
0.00%
and
1.50%
, respectively. The applicable margins, effective
December 31, 2016
, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were
0.00%
and
1.50%
, respectively. The HBB Facility also requires a fee of
0.25%
per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability. The weighted average interest rate applicable to the HBB Facility at
December 31, 2016
was
2.67%
, including the floating rate margin and the effect of the interest rate swap agreements discussed below.
To reduce the exposure to changes in the market rate of interest, HBB has entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require HBB to receive a variable interest rate and pay a fixed interest rate. HBB has interest rate swaps with notional values totaling $20.0 million at
December 31, 2016
at a fixed interest rate of 1.4%. HBB also has delayed start interest rate swaps with notional values totaling $25.0 million at
December 31, 2016
, with fixed rates of 1.6% and 1.7%.
See Note 2
and
Note 9
to the Consolidated Financial Statements in this Form10-K for further discussion of HBB's interest rate swap agreements.
The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are discretionary to the extent that for the thirty days prior to the dividend payment date, and after giving effect to the dividend payment, HBB maintains excess availability of not less than
$25.0 million
. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At
December 31, 2016
, HBB was in compliance with all covenants in the HBB Facility.
HBB believes funds available from cash on hand at the Company, the HBB Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the HBB Facility.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of HBB as of
December 31, 2016
:
|
|
Payments Due by Period
|
||||||||||||||||||||||||||
|
Contractual Obligations
|
Total
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
||||||||||||||||||||
|
HBB Facility
|
$
|
37,917
|
|
$
|
11,917
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26,000
|
|
$
|
—
|
|
||||||
|
Variable interest payments on HBB Facility
|
8,218
|
|
1,296
|
|
1,555
|
|
1,908
|
|
2,213
|
|
1,246
|
|
—
|
|
|||||||||||||
|
Other debt
|
798
|
|
798
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Purchase and other obligations
|
175,085
|
|
164,979
|
|
3,560
|
|
3,471
|
|
3,075
|
|
—
|
|
—
|
|
|||||||||||||
|
Operating leases
|
40,848
|
|
5,889
|
|
5,556
|
|
5,362
|
|
5,295
|
|
3,547
|
|
15,199
|
|
|||||||||||||
|
Total contractual cash obligations
|
$
|
262,866
|
|
$
|
184,879
|
|
$
|
10,671
|
|
$
|
10,741
|
|
$
|
10,583
|
|
$
|
30,793
|
|
$
|
15,199
|
|
||||||
Not included in the table above, HBB has a long-term liability of approximately
$0.5 million
for unrecognized tax benefits, including interest and penalties, as of
December 31, 2016
. At this time, the Company is unable to make a reasonable estimate of the timing of payments due to, among other factors, the uncertainty of the timing and outcome of its audits.
An event of default, as defined in the HBB Facility and in HBB’s operating agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
HBB’s variable interest payments are calculated based upon HBB's anticipated payment schedule and the
December 31, 2016
base rate and applicable margins, as defined in the HBB Facility. A 1/8% increase in the base rate would increase HBB’s estimated total annual interest payments on the HBB Facility by approximately
$0.3 million
.
55
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The purchase and other obligations are primarily for accounts payable, open purchase orders and accrued payroll and incentive compensation.
Pension funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s decisions to contribute above the minimum regulatory funding requirements. As a result, pension funding has not been included in the table above. HBB does not expect to contribute to its U.S. pension plans in
2017
and expects to contribute less than
$0.1 million
to its non-U.S. pension plans in
2017
. Pension benefit payments are made from assets of the pension plans.
Off Balance Sheet Arrangements
HBB has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
|
|
Planned
|
Actual
|
Actual
|
||||||||
|
2017
|
2016
|
2015
|
|||||||||
|
HBB
|
$
|
7.8
|
|
$
|
4.8
|
|
$
|
4.4
|
|
||
Planned expenditures for
2017
are primarily for improvements to HBB’s information technology infrastructure and tooling for new products. These expenditures are expected to be funded from internally generated funds and bank borrowings.
56
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Capital Structure
HBB’s capital structure is presented below:
|
|
December 31
|
|
|||||||||
|
|
2016
|
2015
|
Change
|
||||||||
|
Cash and cash equivalents
|
$
|
2,321
|
|
$
|
474
|
|
$
|
1,847
|
|
||
|
Other net tangible assets
|
66,916
|
|
94,353
|
|
(27,437
|
)
|
|||||
|
Goodwill and intangible assets, net
|
13,534
|
|
14,915
|
|
(1,381
|
)
|
|||||
|
Net assets
|
82,771
|
|
109,742
|
|
(26,971
|
)
|
|||||
|
Total debt
|
(38,714
|
)
|
(58,365
|
)
|
19,651
|
|
|||||
|
Total equity
|
$
|
44,057
|
|
$
|
51,377
|
|
$
|
(7,320
|
)
|
||
|
Debt to total capitalization
|
47
|
%
|
53
|
%
|
(6
|
)%
|
|||||
Net assets decreased
$27.0 million
from
December 31, 2015
primarily due to increases in accounts payable, other current liabilities and accrued payroll. The increase in accounts payable was primarily due to a change in the timing of payments in 2016 compared with 2015. The other current liabilities increase is primarily attributable to changes in accrued cooperative advertising in 2016 compared with 2015.
Total debt decreased
$19.7 million
primarily due to the timing of working capital payments partially offset by dividends paid to NACCO during 2016.
Total equity decreased
$7.3 million
primarily due to
$32.0 million
of dividends paid to NACCO during
2016
and a $2.8 million increase in accumulated other comprehensive loss, mainly due to changes in the foreign currency translation adjustment, partially offset by HBB's 2016 net income of
$26.6 million
.
OUTLOOK
Overall consumer confidence and financial pressures experienced by the middle-market consumer and changing consumer buying patterns continue to create uncertainty about the overall growth prospects for the U.S. retail market for small appliances. In this context, 2017 U.S. and Canadian consumer retail markets for small kitchen appliances are expected to be comparable to 2016, while international and commercial markets in which HBB participates are expected to continue to grow moderately. Sales are expected to continue to shift from in-store channels to internet sales channels.
HBB continues to focus on strengthening the consumer market position of its various product lines through product innovation, promotions, increased placements and branding programs. HBB will continue to leverage its strong brand portfolio by introducing new innovative products, as well as upgrades to certain existing products across a wide range of brands, price points and categories in both retail and commercial marketplaces. The company continues to pursue opportunities to create or add product lines and brands that can be distributed in high-end or specialty stores and on the Internet, including the Hamilton Beach
®
Professional premium line of counter-top kitchen appliances, which was introduced in the second half of 2016. HBB also expects its growing global commercial business to benefit from broader distribution of several newer products.
As a result of this market environment and its product introductions, HBB's sales volumes and revenues are expected to increase modestly in 2017 compared with 2016. This increase is expected to be slightly more than the anticipated market growth due to enhanced distribution and increased higher-margin product placements resulting from the execution of the company's strategic initiatives, both domestically and internationally.
Net income in 2017 is also expected to increase modestly compared with 2016 as benefits of the increased revenues are expected to be mostly offset by the costs to implement these initiatives, as well as increased advertising and distribution costs.
HBB continues to monitor currency effects, as well as commodity and other input costs, closely, and intends to continue to adjust product prices and product placements as market conditions permit.
57
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
In 2017, cash flow before financing activities is expected to be substantial but lower than 2016 and capital expenditures are estimated to be approximately $8 million.
Longer term, HBB will work to improve return on sales through economies of scale derived from market growth and its strategic revenue growth initiatives. These initiatives are focused on enhancing HBB's placements in the North American consumer business, enhancing sales in the ecommerce market, expanding its participation in the "only-the-best" market by investing in new products to be sold under the Wolf Gourmet
®
, Weston
®
and Hamilton Beach
®
Professional brand names, expanding internationally in emerging growth markets, increasing its global commercial presence through enhanced global product lines for chains and distributors serving the global food service and hospitality markets and leveraging its other strategic initiatives to drive category and channel expansion.
THE KITCHEN COLLECTION, LLC
KC’s business is seasonal and a majority of revenues and operating profit typically occurs in the second half of the year when sales of small electric appliances to consumers increase significantly for the fall holiday-selling season.
At
December 31, 2016
, KC operated
223
stores compared with
229
stores at
December 31, 2015
.
FINANCIAL REVIEW
Operating Results
The results of operations for KC were as follows for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
$
|
144,351
|
|
$
|
150,988
|
|
$
|
168,545
|
|
||
|
Operating profit (loss)
|
$
|
376
|
|
$
|
165
|
|
$
|
(7,075
|
)
|
||
|
Interest expense
|
$
|
209
|
|
$
|
131
|
|
$
|
367
|
|
||
|
Net loss
|
$
|
(355
|
)
|
$
|
(420
|
)
|
$
|
(4,603
|
)
|
||
|
Effective income tax rate
|
n/m
|
|
n/m
|
|
38.7
|
%
|
|||||
2016
Compared with
2015
The following table identifies the components of change in revenues for
2016
compared with
2015
:
|
|
Revenues
|
||
|
2015
|
$
|
150,988
|
|
|
Increase (decrease) from:
|
|
||
|
Closed stores
|
(7,907
|
)
|
|
|
Comparable stores
|
(3,981
|
)
|
|
|
New stores
|
5,028
|
|
|
|
Other
|
223
|
|
|
|
2016
|
$
|
144,351
|
|
Revenues decreased
4.4%
in
2016
compared with
2015
. The decrease was primarily the result of the loss of sales from closing unprofitable stores during 2016 and 2015 and a decline in comparable store sales. The decrease in comparable store sales resulted from fewer customer visits and a reduction in store transactions as a result of reduced consumer traffic, partially offset by an increase in the average sales transaction value for
2016
compared with
2015
. These decreases were also offset by sales at newly opened stores.
58
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table identifies the components of change in operating profit for
2016
compared with
2015
:
|
|
Operating profit
|
||
|
2015
|
$
|
165
|
|
|
Increase (decrease) from:
|
|
||
|
Closed stores
|
369
|
|
|
|
Comparable stores
|
101
|
|
|
|
Selling, general and administrative expenses and other
|
31
|
|
|
|
Affordable Care Act ("ACA") penalty
|
(156
|
)
|
|
|
New stores
|
(134
|
)
|
|
|
2016
|
$
|
376
|
|
KC's operating profit increased in
2016
compared with
2015
primarily as a result of closing unprofitable stores.
KC reported a net loss of
$0.4 million
in both years as the improvement in operating profit in 2016 was offset by higher interest and income tax expenses.
2015
Compared with
2014
The following table identifies the components of change in revenues for
2015
compared with
2014
:
|
|
Revenues
|
||
|
2014
|
$
|
168,545
|
|
|
Increase (decrease) from:
|
|
||
|
Le Gourmet Chef ("LGC") closed stores
|
(11,365
|
)
|
|
|
KC closed stores
|
(10,050
|
)
|
|
|
Comparable stores
|
(2,055
|
)
|
|
|
Other
|
(459
|
)
|
|
|
New stores
|
6,372
|
|
|
|
2015
|
$
|
150,988
|
|
Revenues decreased 10.4% in
2015
compared with
2014
. The decrease was primarily the result of the loss of sales from closing unprofitable LGC and KC stores during 2015 and 2014 and a decline in comparable store sales at KC. The decrease in KC comparable store sales resulted from fewer customer visits, a reduction in store transactions and a decrease in the average sales transaction value for 2015 compared with 2014. These decreases were partially offset by sales at newly opened KC stores.
At
December 31, 2015
, KC operated 229 stores compared with 248 stores at
December 31, 2014
.
59
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table identifies the components of change in operating loss for
2015
compared with
2014
:
|
|
Operating profit (loss)
|
||
|
2014
|
$
|
(7,075
|
)
|
|
Increase (decrease) from:
|
|
||
|
Comparable stores
|
2,189
|
|
|
|
Selling, general and administrative expenses and other
|
1,434
|
|
|
|
LGC closed stores
|
1,141
|
|
|
|
Lease termination penalties
|
1,121
|
|
|
|
KC closed stores
|
898
|
|
|
|
Asset impairment charges
|
877
|
|
|
|
New stores
|
455
|
|
|
|
ACA penalty
|
(875
|
)
|
|
|
2015
|
$
|
165
|
|
KC reported operating profit of $0.2 million in
2015
compared with an operating loss of $7.1 million in
2014
, primarily as a result of improvements in KC comparable store operating margins, lower Selling, general and administrative expenses, closing unprofitable LGC and KC stores and a reduction in lease termination penalties in
2015
compared with
2014
. Comparable store operating margins improved due to fewer promotional sales and mark-downs, a shift in mix to higher-margin products and a reduction in store expenses. Selling general and administrative expenses decreased mainly from a reduction in employee-related expenses and depreciation.
KC reported a net loss of
$0.4 million
in
2015
compared with a net loss of
$4.6 million
in
2014
primarily due to the factors affecting the change in operating loss partially offset by an increase in the effective income tax rate in 2015 due to the non-deductible ACA penalty.
60
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except 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
:
|
|
2016
|
2015
|
Change
|
||||||||
|
Operating activities:
|
|
|
|
||||||||
|
Net loss
|
$
|
(355
|
)
|
$
|
(420
|
)
|
$
|
65
|
|
||
|
Depreciation
|
1,545
|
|
1,558
|
|
(13
|
)
|
|||||
|
Other
|
(219
|
)
|
771
|
|
(990
|
)
|
|||||
|
Working capital changes
|
2,862
|
|
10,639
|
|
(7,777
|
)
|
|||||
|
Net cash provided by operating activities
|
3,833
|
|
12,548
|
|
(8,715
|
)
|
|||||
|
Investing activities:
|
|
|
|
||||||||
|
Expenditures for property, plant and equipment
|
(1,188
|
)
|
(1,806
|
)
|
618
|
|
|||||
|
Other
|
51
|
|
38
|
|
13
|
|
|||||
|
Net cash used for investing activities
|
(1,137
|
)
|
(1,768
|
)
|
631
|
|
|||||
|
Cash flow before financing activities
|
$
|
2,696
|
|
$
|
10,780
|
|
$
|
(8,084
|
)
|
||
Net cash provided by operating activities decreased
$8.7 million
during
2016
compared with
2015
primarily due to the change in working capital. The change in working capital was attributable to an increase in inventory during 2016 compared with a large decrease during 2015, partially offset by a large increase in accounts payable during 2016 compared with a decrease during 2015. The increase in inventory during 2016 was primarily attributable to an increase in inventory per store at December 31, 2016 and the increase in accounts payable during 2016 was due to the timing of inventory purchases.
|
|
2016
|
2015
|
Change
|
||||||||
|
Financing activities:
|
|
|
|
||||||||
|
Cash dividends paid to NACCO
|
$
|
(10,000
|
)
|
$
|
—
|
|
$
|
(10,000
|
)
|
||
|
Net cash used for financing activities
|
$
|
(10,000
|
)
|
$
|
—
|
|
$
|
(10,000
|
)
|
||
The
$10.0 million
change in net cash used for financing activities during
2016
compared with
2015
was the result of cash dividends paid to NACCO.
Financing Activities
KC has a
$25.0 million
secured revolving line of credit that expires in September 2019 (the “KC Facility”). The obligations under the KC Facility are secured by substantially all of the assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was
$51.0 million
as of
December 31, 2016
. At
December 31, 2016
, the borrowing base and excess availability under the KC Facility were
$20.5 million
. KC had no borrowings outstanding under the KC Facility at
December 31, 2016
.
The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of
1.00%
or LIBOR plus a margin of
2.00%
as of
December 31, 2016
. The KC Facility also requires a fee of
0.32%
per annum on the unused commitment.
The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i)
$6.0 million
in any
twelve
-
61
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
month period, so long as KC has excess availability, as defined in the KC Facility, of at least
$6.3 million
after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of
1.1
to 1.0, as defined in the KC Facility; (ii)
$2.0 million
in any
twelve
-month period, so long as KC has excess availability, as defined in the KC Facility, of at least
$6.3 million
after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of
$12.5 million
after giving effect to such payment. At
December 31, 2016
, KC was in compliance with all financial covenants in the KC Facility.
KC believes funds available from cash on hand at the Company, the KC Facility and operating cash flows will provide sufficient liquidity to meet its operating needs and commitments arising during the next twelve months and until the expiration of the KC Facility.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of KC as of
December 31, 2016
:
|
|
Payments Due by Period
|
||||||||||||||||||||||||||
|
Contractual Obligations
|
Total
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
||||||||||||||||||||
|
Purchase and other obligations
|
$
|
33,829
|
|
$
|
33,829
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||||||
|
Operating leases
|
66,940
|
|
18,753
|
|
14,451
|
|
10,543
|
|
8,096
|
|
5,208
|
|
9,889
|
|
|||||||||||||
|
Total contractual cash obligations
|
$
|
100,769
|
|
$
|
52,582
|
|
$
|
14,451
|
|
$
|
10,543
|
|
$
|
8,096
|
|
$
|
5,208
|
|
$
|
9,889
|
|
||||||
An event of default, as defined in KC’s operating lease agreements, could cause an acceleration of the payment schedule. No such event of default has occurred or is anticipated to occur.
The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.
Off Balance Sheet Arrangements
KC has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Expenditures
Following is a table which summarizes actual and planned capital expenditures (in millions):
|
|
Planned
|
Actual
|
Actual
|
||||||||
|
2017
|
2016
|
2015
|
|||||||||
|
KC
|
$
|
1.6
|
|
$
|
1.2
|
|
$
|
1.8
|
|
||
Planned expenditures in
2017
for property, plant and equipment are primarily for improvements to KC’s information technology infrastructure, store remodels and new store fixtures. These expenditures are expected to be funded from internally generated funds and bank borrowings.
62
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Capital Structure
KC’s capital structure is presented below.
|
|
December 31
|
|
|||||||||
|
|
2016
|
2015
|
Change
|
||||||||
|
Cash and cash equivalents
|
$
|
9,010
|
|
$
|
16,314
|
|
$
|
(7,304
|
)
|
||
|
Other net tangible assets
|
12,384
|
|
15,436
|
|
(3,052
|
)
|
|||||
|
Net assets
|
21,394
|
|
31,750
|
|
(10,356
|
)
|
|||||
|
Total debt
|
—
|
|
—
|
|
—
|
|
|||||
|
Total equity
|
$
|
21,394
|
|
$
|
31,750
|
|
$
|
(10,356
|
)
|
||
|
Debt to total capitalization
|
(a)
|
|
(a)
|
|
(a)
|
|
|||||
(a)
Debt to total capitalization is not meaningful as KC has no outstanding debt at
December 31, 2016
or
December 31, 2015
.
Other net tangible assets decreased
$3.1 million
from
December 31, 2015
primarily due to an increase in accounts payable partially offset by an increase in inventory. The increases in accounts payable and inventory are primarily attributable to timing and an increase in average inventory per store at
December 31, 2016
compared with
December 31, 2015
.
OUTLOOK
A shift in consumer shopping patterns has led to declining consumer traffic to physical retail locations and reduced in-store transactions as consumers buy more over the Internet or utilize the Internet for comparison shopping. Financial pressures on middle-market consumers interested in housewares and small appliances continue to persist and have also adversely affected sales trends in these categories over the last few years. These factors are expected to continue to limit KC's target consumers' spending on housewares and small appliances, resulting in continued market softness in 2017. Given this market environment, KC expects to continue to aggressively manage and reduce its store portfolio and continue its focus on a smaller core group of profitable Kitchen Collection
®
outlet stores. The company closed 17 stores early in the first quarter of 2017 and plans to open a limited number of stores throughout the remainder of the year in locations that are expected to generate acceptable profitability. As a result of these actions, KC anticipates revenues to decline modestly in 2017 compared with 2016, with full year 2017 results comparable to 2016, provided customer visits are at expected levels. Cash flow before financing activities is expected to be positive in 2017 but substantially lower than 2016 and capital expenditures are estimated to be $1.6 million.
KC aims to provide consumers with products they want at affordable prices. KC's continued focus on increasing the average sale per transaction, the average closure rate and the number of items per transaction through the continued refinement of its format and improved customer interactions to enhance customers' store experience is expected to generate comparable store sales growth over time. Additionally, improved product offerings, a focus on sales of higher-margin products, merchandise mix and displays, new store profitability, closure of underperforming stores and optimizing expense structure are expected to generate improved operating profit over time. As a result, KC believes its smaller core store portfolio is well positioned to take advantage of any future market rebound.
63
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NACCO AND OTHER
NACCO and Other includes the parent company operations and Bellaire Corporation ("Bellaire"), a non-operating subsidiary of NACCO. Although Bellaire’s operations are immaterial, it has long-term liabilities related to closed mines, primarily from former Eastern U.S. underground coal mining activities.
FINANCIAL REVIEW
Operating Results
The results of operations at NACCO and Other were as follows for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
||
|
Operating loss
|
$
|
(7,278
|
)
|
$
|
(4,248
|
)
|
$
|
(5,456
|
)
|
||
|
Other (income) expense, including closed mine obligations
|
$
|
(535
|
)
|
$
|
649
|
|
$
|
2,284
|
|
||
|
Net loss
|
$
|
(4,816
|
)
|
$
|
(3,346
|
)
|
$
|
(5,344
|
)
|
||
2016
Compared with
2015
NACCO and Other recognized an increased operating loss in
2016
compared with
2015
. The increase in the operating loss was primarily due to higher employee-related expenses in 2016 partially offset by higher management fees charged to the subsidiaries.
NACCO and Other recognized other income in 2016 compared with other expense in 2015 primarily due to revisions of estimated cash flows for the Bellaire asset retirement obligation.
NACCO and Other recognized a net loss of
$4.8 million
in
2016
compared with a net loss of
$3.3 million
in
2015
primarily due to the factors affecting the operating loss and other (income) expense.
2015
Compared with
2014
NACCO and Other recognized a decreased operating loss in
2015
compared with
2014
. The decrease in the operating loss was primarily due to higher management fees charged to the subsidiaries and lower employee-related expenses in 2015. In 2014, employee-related expenses included the unfavorable impact of a prior period accounting error. As a result of the error, the Company recorded a $1.1 million charge included in Selling, general and administrative expenses in NACCO and Other in 2014.
NACCO and Other recognized a decrease in Other expense primarily due to revisions of estimated cash flows for the Bellaire asset retirement obligation.
NACCO and Other recognized a net loss of
$3.3 million
in
2015
compared with a net loss of
$5.3 million
in
2014
primarily due to the factors affecting the operating loss and other (income) expense.
Stock Repurchase Programs
See, "Item 5 — Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" and
Note 13
to the Consolidated Financial Statements in this Form 10-K for a discussion of the Company's stock repurchase programs.
64
|
Item 7.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Management Fees
The management fees charged to operating subsidiaries represent an allocation of corporate overhead of the parent company. Management fees are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary. The Company believes the allocation method is consistently applied and reasonable.
Following are the parent company management fees included in each subsidiary’s Selling, general and administrative expenses for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
NACoal
|
$
|
7,360
|
|
$
|
5,328
|
|
$
|
4,521
|
|
||
|
HBB
|
$
|
3,860
|
|
$
|
3,654
|
|
$
|
3,714
|
|
||
|
KC
|
$
|
280
|
|
$
|
270
|
|
$
|
260
|
|
||
LIQUIDITY AND CAPITAL RESOURCES
Although NACCO’s subsidiaries have entered into borrowing agreements, NACCO has not guaranteed any borrowings of its subsidiaries. The borrowing agreements at NACoal, HBB and KC allow for the payment to NACCO of dividends and advances under certain circumstances. Dividends (to the extent permitted by its subsidiaries’ borrowing agreements), advances and management fees from its subsidiaries are the primary sources of cash for NACCO.
The Company believes funds available from cash on hand, its subsidiaries’ credit facilities and anticipated funds generated from its subsidiaries operations are sufficient to finance all of its subsidiaries scheduled principal repayments, operating needs and commitments arising during the next twelve months and until the expiration of its subsidiaries’ credit facilities.
Contractual Obligations, Contingent Liabilities and Commitments
Following is a table which summarizes the contractual obligations of NACCO and Other as of
December 31, 2016
:
|
Contractual Obligations
|
Total
|
2017
|
2018
|
2019
|
2020
|
2021
|
Thereafter
|
||||||||||||||||||||
|
Operating leases
|
$
|
1,674
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
||||||
|
Purchase and other obligations
|
8,846
|
|
8,846
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||||||
|
Total contractual cash obligations
|
$
|
10,520
|
|
$
|
9,125
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
$
|
279
|
|
||||||
Not included in the table above, NACCO has a long-term liability of approximately $0.2 million for unrecognized tax benefits, including interest and penalties, as of
December 31, 2016
. Pension and postretirement funding can vary significantly each year due to plan amendments, changes in the market value of plan assets, legislation and the Company’s funding decisions to contribute any excess above the minimum legislative funding requirements. As a result, pension and postretirement funding has not been included in the table above. NACCO does not expect to contribute to its pension plan during
2017
. NACCO and Other maintains one supplemental retirement plan that pays monthly benefits to participants directly out of corporate funds. Annual benefit payments are expected to be less than $0.1 million per year over the next ten years. Benefit payments beyond that time cannot currently be estimated. All other pension benefit payments are made from assets of the pension plan.
The purchase and other obligations are primarily for accounts payable, open purchase orders, accrued payroll and incentive compensation.
NACCO and Other has a long-term liability of $18.7 million, primarily for asset retirement obligations, that is not included in the table above due to the uncertainty of the timing of payments to settle these liabilities.
65
|
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)
Off Balance Sheet Arrangements
NACCO has not entered into any off balance sheet financing arrangements, other than operating leases, which are disclosed in the contractual obligations table above.
Capital Structure
NACCO’s consolidated capital structure is presented below:
|
|
December 31
|
|
|||||||||
|
|
2016
|
2015
|
Change
|
||||||||
|
Cash and cash equivalents
|
$
|
80,648
|
|
$
|
52,499
|
|
$
|
28,149
|
|
||
|
Other net tangible assets
|
236,823
|
|
278,786
|
|
(41,963
|
)
|
|||||
|
Goodwill and intangible assets, net
|
59,212
|
|
63,096
|
|
(3,884
|
)
|
|||||
|
Net assets
|
376,683
|
|
394,381
|
|
(17,698
|
)
|
|||||
|
Total debt
|
(134,753
|
)
|
(169,982
|
)
|
35,229
|
|
|||||
|
Closed mine obligations
|
(21,637
|
)
|
(23,261
|
)
|
1,624
|
|
|||||
|
Total equity
|
$
|
220,293
|
|
$
|
201,138
|
|
$
|
19,155
|
|
||
|
Debt to total capitalization - continuing operations
|
38
|
%
|
46
|
%
|
(8
|
)%
|
|||||
RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting Standards Adopted in 2016:
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, "Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)." ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of debt issuance costs over the term of the line-of-credit arrangement, whether or not there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory - Simplifying the Measurement of Inventory," which requires that inventory be measured at lower of cost or net realizable value. The Company elected early adoption of this guidance, which did not have a material effect on the Company's financial position, results of operations, cash flows and related disclosures.
Accounting Standards Not Yet Adopted:
In May 2014, the FASB codified in ASC 606, "Revenue Recognition - Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers and provide additional disclosures. As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein. The Company anticipates adopting the new revenue guidance effective January 1, 2018 using the modified retrospective method with the cumulative effect of initially applying the standard recognized as an adjustment to equity. The Company has developed a project plan with respect to its implementation of this standard, including identification of revenue streams and review of contracts and procedures currently in place, and is evaluating the impact on the Company's financial position, results of operations and cash flows. The adoption of this guidance will result in increased disclosures to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. The Company is in the process of identifying and implementing changes to processes and controls to meet the standard's updated reporting and
66
|
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)
disclosure requirements and continues to update its assessment of the impact of the standard. The Company expects to further its assessment of the financial impact of the new guidance on its consolidated financial statements by mid-2017.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which modifies how entities measure equity investments and present changes in the fair value of financial liabilities; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact that this new guidance will have on the Company’s financial position, results of operations, cash flows and related disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which requires an entity to recognize assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating how and to what extent ASU 2016-02 will affect the Company's financial position, results of operations, cash flows and related disclosures.
EFFECTS OF FOREIGN CURRENCY
HBB operates internationally and enters into transactions denominated in foreign currencies. As a result, the Company is subject to the variability that arises from exchange rate movements. The effects of foreign currency on operating results at HBB is discussed above. The Company’s use of foreign currency derivative contracts is discussed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of this Form 10-K.
ENVIRONMENTAL MATTERS
The Company’s previous manufacturing operations, like those of other companies engaged in similar businesses, involved the use, disposal and cleanup of substances regulated under environmental protection laws. The Company’s NACoal and Bellaire subsidiaries are affected by the regulations of numerous agencies, particularly the Federal Office of Surface Mining, the U.S. Environmental Protection Agency, the U.S. Army Corps of Engineers and associated state regulatory authorities. In addition, NACoal and Bellaire closely monitor proposed legislation and regulation concerning SMCRA, CAA, CPP, reauthorization of the Resource Conservation and Recovery Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Endangered Species Act and other regulatory actions.
Compliance with these increasingly stringent 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.
FORWARD-LOOKING STATEMENTS
The statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties with respect to each subsidiary's operations include, without limitation:
NACoal:
(1) changes in tax laws or regulatory requirements, including changes in mining or power plant emission regulations and health, safety or environmental legislation, (2) changes in costs related to geological conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (3) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (4) weather conditions, extended
67
|
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)
power plant outages or other events that would change the level of customers' coal or limerock requirements, (5) weather or equipment problems that could affect deliveries to customers, (6) changes in the power industry that would affect demand for NACoal's reserves, (7) changes in the costs to reclaim NACoal mining areas, (8) costs to pursue and develop new mining opportunities, (9) changes to or termination of a long-term mining contract, or a customer default under a contract, (10) the timing and pricing of transactions to dispose of assets at the Centennial operations, (11) delays or reductions in coal deliveries at NACoal's newer mines, and (12) increased competition, including consolidation within the industry.
HBB:
(1) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances, (2) changes in consumer retail and credit markets, (3) bankruptcy of or loss of major retail customers or suppliers, (4) changes in costs, including transportation costs, of sourced products, (5) delays in delivery of sourced products, (6) changes in or unavailability of quality or cost effective suppliers, (7) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which HBB buys, operates and/or sells products, (8) product liability, regulatory actions or other litigation, warranty claims or returns of products, (9) customer acceptance of, changes in costs of, or delays in the development of new products, (10) increased competition, including consolidation within the industry and (11) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation.
KC:
(1) increased competition, including through online channels, (2) shift in consumer shopping patterns, gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the number of customers visiting Kitchen Collection
®
stores, (3) changes in the sales prices, product mix or levels of consumer purchases of kitchenware and small electric appliances, (4) changes in costs, including transportation costs, of inventory, (5) delays in delivery or the unavailability of inventory, (6) customer acceptance of new products, (7) the anticipated impact of the opening of new stores, the ability to renegotiate existing leases and effectively and efficiently close under-performing stores and (8) changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which KC buys, operates and/or sells products.
68
INTEREST RATE RISK
The Company's subsidiaries, NACoal, HBB and KC, have entered into certain financing arrangements that require interest payments based on floating interest rates. As such, the Company's financial results are subject to changes in the market rate of interest. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. To reduce the exposure to changes in the market rate of interest, NACoal and HBB have entered into interest rate swap agreements for a portion of its floating rate financing arrangements. The Company does not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require the subsidiaries to receive a variable interest rate and pay a fixed interest rate.
See Note 2
and
Note 9
to the Consolidated Financial Statements in this Form10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. The Company assumes that a loss in fair value is an increase to its liabilities. The fair value of the Company's interest rate swap agreements was a receivable of
$1.1 million
at
December 31, 2016
. A hypothetical 10% decrease in interest rates would cause an increase of
$0.1 million
in the fair value of interest rate swap agreements and the resulting fair value would be a receivable of
$1.2 million
.
FOREIGN CURRENCY EXCHANGE RATE RISK
HBB operates internationally and enters into transactions denominated in foreign currencies, principally the Canadian dollar, the Mexican peso and, to a lesser extent, the Chinese yuan and Brazilian real. As such, HBB's financial results are subject to the variability that arises from exchange rate movements. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of revenues, expenses, assets and liabilities. The potential impact of currency fluctuation increases as international expansion increases.
HBB uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within twelve months and require HBB to buy or sell the functional currency in which the applicable subsidiary operates and buy or sell U.S. dollars at rates agreed to at the inception of the contracts.
See Note 2
and
Note 9
to the Consolidated Financial Statements in this Form 10-K.
For purposes of risk analysis, the Company uses sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange rates. The Company assumes that a loss in fair value is either a decrease to its assets or an increase to its liabilities. The fair value of the Company's foreign currency exchange contracts was a net receivable of
$0.1 million
at
December 31, 2016
. Assuming a hypothetical 10% weakening of the U.S. dollar compared with the Canadian dollar at
December 31, 2016
, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by
$1.1 million
compared with its fair value at
December 31, 2016
. It is important to note that the change in fair value indicated in this sensitivity analysis would be somewhat offset by changes in the fair value of the underlying receivables and payables.
COMMODITY PRICE RISK
The Company uses certain commodities, including steel and diesel fuel, in the normal course of its mining processes. As such, the cost of operations is subject to variability as the market for these commodities changes. The Company monitors this risk and utilizes forward purchase contracts to manage a portion of NACoal's exposure related to diesel fuel volatility. There have been no material changes in the Company's commodity price risk during
2016
.
The information required by this Item 8 is set forth in the Financial Statements and Supplementary Data contained in Part IV of this Form 10-K and is hereby incorporated herein by reference to such information.
There were no disagreements with accountants on accounting and financial disclosure for the three-year period ended
December 31, 2016
.
69
Item 9A
.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures:
An evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and the principal financial officer, of the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective.
Management's report on internal control over financial reporting:
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this evaluation under the framework, management concluded that the Company's internal control over financial reporting was effective as of
December 31, 2016
. The Company's effectiveness of internal control over financial reporting as of
December 31, 2016
has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in its report, which is included in Item 15 of this Form 10-K and incorporated herein by reference.
Changes in internal control:
There have been no changes in the Company's internal control over financial reporting, that occurred during the fourth quarter of
2016
, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B
.
OTHER INFORMATION
None.
70
Information with respect to Directors of the Company will be set forth in the
2017
Proxy Statement under the subheadings “Part III — Proposals To Be Voted On At The
2017
Annual Meeting — Proposal 1 — Election of Directors — Director Nominee Information,” which information is incorporated herein by reference.
Information with respect to the audit review committee and the audit review committee financial expert will be set forth in the
2017
Proxy Statement under the subheading “Part I — Corporate Governance Information — Directors' Meetings and Committees,” which information is incorporated herein by reference.
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 by the Company's Directors, executive officers and holders of more than ten percent of the Company's equity securities will be set forth in the
2017
Proxy Statement under the subheading “Part IV — Other Important Information — Section 16(a) Beneficial Ownership Reporting Compliance,” which information is incorporated herein by reference.
Information regarding the executive officers of the Company is included in this Form 10-K as Item 4A of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.
The Company has adopted a code of business conduct and ethics applicable to all Company personnel, including the principal executive officer, principal financial officer, principal accounting officer or controller, or other persons performing similar functions. The code of business conduct and ethics, entitled the “Code of Corporate Conduct,” is posted on the Company's website at www.nacco.com under “Corporate Governance.”
Information with respect to executive compensation will be set forth in the
2017
Proxy Statement under the headings “Part II — Executive Compensation Information” and “Part III — Proposals To Be Voted On At The
2017
Annual Meeting — Proposal 1 — Election of Directors — Director Compensation,” which information is incorporated herein by reference.
Information with respect to security ownership of certain beneficial owners and management will be set forth in the
2017
Proxy Statement under the subheading “ Part IV — Other Important Information — Beneficial Ownership of Class A Common and Class B Common,” which information is incorporated herein by reference.
Information with respect to compensation plans (including individual compensation arrangements) under which equity securities are authorized for issuance will be set forth in the
2017
Proxy Statement under the subheading “Part IV — Other Important Information — Equity Compensation Plan Information," which information is incorporated herein by reference.
Information with respect to certain relationships and related transactions will be set forth in the
2017
Proxy Statement under the subheadings “Part I — Corporate Governance Information — Review and Approval of Related Person Transactions,” which information is incorporated herein by reference.
Information with respect to principal accountant fees and services will be set forth in the
2017
Proxy Statement under the heading “Part III — Proposals To Be Voted On At The
2017
Annual Meeting — Proposal 6 — Ratification of the Appointment of Ernst & Young LLP as the Company's Independent Registered Public Accounting Firm for
2017
,” which information is incorporated herein by reference.
71
(a) (1) and (2) The response to Item 15(a)(1) and (2) is set forth beginning at page F-1 of this Form 10-K.
(a) (3) Listing of Exhibits — See the exhibit index beginning at page X-1 of this Form 10-K.
(b) The response to Item 15(b) is set forth beginning at page X-1 of this Form 10-K.
(c) Financial Statement Schedules — The response to Item 15(c) is set forth beginning at page F-45 of this Form 10-K.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
NACCO Industries, Inc.
|
|
||
|
|
By:
|
/s/ Elizabeth I. Loveman
|
|
|
|
|
|
Elizabeth I. Loveman
|
|
|
|
|
|
Vice President and Controller
(principal financial and accounting officer) |
|
|
March 1, 2017
73
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
/s/ Alfred M. Rankin, Jr.
|
|
Chairman, President and Chief Executive Officer (principal executive officer), Director
|
March 1, 2017
|
|
Alfred M. Rankin, Jr.
|
|
|
|
|
/s/ Elizabeth I. Loveman
|
Vice President and Controller (principal financial and accounting officer)
|
March 1, 2017
|
|
|
Elizabeth I. Loveman
|
|||
|
* John P. Jumper
|
|
Director
|
March 1, 2017
|
|
John P. Jumper
|
|
|
|
|
|
|
|
|
|
* Dennis W. LaBarre
|
|
Director
|
March 1, 2017
|
|
Dennis W. LaBarre
|
|
|
|
|
|
|
|
|
|
* Michael S. Miller
|
Director
|
March 1, 2017
|
|
|
Michael S. Miller
|
|||
|
* Richard de J. Osborne
|
|
Director
|
March 1, 2017
|
|
Richard de J. Osborne
|
|
|
|
|
|
|
|
|
|
* James A. Ratner
|
|
Director
|
March 1, 2017
|
|
James A. Ratner
|
|
|
|
|
|
|
|
|
|
* Britton T. Taplin
|
|
Director
|
March 1, 2017
|
|
Britton T. Taplin
|
|
|
|
|
|
|
|
|
|
* David F. Taplin
|
|
Director
|
March 1, 2017
|
|
David F. Taplin
|
|
|
|
|
|
|
|
|
|
* David B. H. Williams
|
|
Director
|
March 1, 2017
|
|
David B. H. Williams
|
|
|
|
* Elizabeth I. Loveman, by signing her name hereto, does hereby sign this Form 10-K on behalf of each of the above named and designated directors of the Company pursuant to a Power of Attorney executed by such persons and filed with the Securities and Exchange Commission.
|
/s/ Elizabeth I. Loveman
|
|
March 1, 2017
|
|
Elizabeth I. Loveman, Attorney-in-Fact
|
|
|
74
ANNUAL REPORT ON FORM 10-K
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED
DECEMBER 31, 2016
NACCO INDUSTRIES, INC.
CLEVELAND, OHIO
F-1
FORM 10-K
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NACCO Industries, Inc. and Subsidiaries are incorporated by reference in Item 8:
The following consolidated financial statement schedules of NACCO Industries, Inc. and Subsidiaries are included in Item 15(c):
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.
We have audited the accompanying consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries (collectively “the Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NACCO Industries, Inc. and Subsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated
March 1, 2017
expressed an unqualified opinion thereon.
|
/s/ Ernst & Young LLP
|
|||
|
Cleveland, Ohio
|
|||
|
March 1, 2017
|
|||
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of NACCO Industries, Inc.
We have audited NACCO Industries, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). NACCO Industries, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s report on internal control over financial reporting in Item 9A. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, NACCO Industries, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of NACCO Industries, Inc. and Subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), equity and cash flows for each of the three years in the period ended December 31, 2016 and our report dated
March 1, 2017
expressed an unqualified opinion thereon.
|
/s/ Ernst & Young LLP
|
|||
|
Cleveland, Ohio
|
|||
|
March 1, 2017
|
|||
F-4
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
|
|
Year Ended December 31
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
|
(In thousands, except per share data)
|
||||||||||
|
Revenues
|
$
|
856,438
|
|
$
|
915,860
|
|
$
|
896,782
|
|
||
|
Cost of sales
|
650,585
|
|
736,364
|
|
711,710
|
|
|||||
|
Gross profit
|
205,853
|
|
179,496
|
|
185,072
|
|
|||||
|
Earnings of unconsolidated mines
|
55,238
|
|
48,432
|
|
48,396
|
|
|||||
|
Operating expenses
|
|
|
|
||||||||
|
Selling, general and administrative expenses
|
197,903
|
|
193,925
|
|
198,697
|
|
|||||
|
Centennial asset impairment charge
|
17,443
|
|
—
|
|
105,119
|
|
|||||
|
Amortization of intangible assets
|
3,884
|
|
3,987
|
|
3,300
|
|
|||||
|
Loss (gain) on sale of assets
|
146
|
|
(1,811
|
)
|
(7,339
|
)
|
|||||
|
|
219,376
|
|
196,101
|
|
299,777
|
|
|||||
|
Operating profit (loss)
|
41,715
|
|
31,827
|
|
(66,309
|
)
|
|||||
|
Other expense (income)
|
|
|
|
||||||||
|
Interest expense
|
5,692
|
|
6,924
|
|
7,566
|
|
|||||
|
Income from other unconsolidated affiliates
|
(1,221
|
)
|
(2,040
|
)
|
(161
|
)
|
|||||
|
Closed mine obligations
|
(214
|
)
|
919
|
|
2,582
|
|
|||||
|
Other, net, including interest income
|
2,988
|
|
1,225
|
|
277
|
|
|||||
|
|
7,245
|
|
7,028
|
|
10,264
|
|
|||||
|
Income (loss) before income tax provision (benefit)
|
34,470
|
|
24,799
|
|
(76,573
|
)
|
|||||
|
Income tax provision (benefit)
|
4,863
|
|
2,815
|
|
(38,455
|
)
|
|||||
|
Net income (loss)
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
||
|
Basic earnings (loss) per share
|
$
|
4.34
|
|
$
|
3.14
|
|
$
|
(5.02
|
)
|
||
|
Diluted earnings (loss) per share
|
$
|
4.32
|
|
$
|
3.13
|
|
$
|
(5.02
|
)
|
||
|
Basic weighted average shares outstanding
|
6,818
|
|
7,001
|
|
7,590
|
|
|||||
|
Diluted weighted average shares outstanding
|
6,854
|
|
7,022
|
|
7,590
|
|
|||||
See notes to consolidated financial statements.
F-5
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
Year Ended December 31
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
|
(In thousands)
|
||||||||||
|
Net income (loss)
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
||
|
Other comprehensive income (loss)
|
|
|
|
||||||||
|
Foreign currency translation adjustment
|
(2,078
|
)
|
(2,756
|
)
|
(1,896
|
)
|
|||||
|
Deferred gain on available for sale securities, net of tax
|
413
|
|
17
|
|
442
|
|
|||||
|
Current period cash flow hedging activity, net of $73 tax benefit in 2016, $357 tax benefit in 2015 and $838 tax benefit in 2014
|
(252
|
)
|
(577
|
)
|
(1,518
|
)
|
|||||
|
Reclassification of hedging activities into earnings, net of $419 tax benefit in 2016, $191 tax benefit in 2015 and $489 tax benefit in 2014
|
757
|
|
409
|
|
898
|
|
|||||
|
Current period pension and postretirement plan adjustment, net of $1,098 tax benefit in 2016, $1,222 tax benefit in 2015 and $3,292 tax benefit in 2014
|
(2,011
|
)
|
(1,204
|
)
|
(6,483
|
)
|
|||||
|
Reclassification of pension and postretirement adjustments into earnings, net of $408 tax benefit in 2016, $420 tax benefit in 2015 and $313 tax benefit in 2014
|
688
|
|
856
|
|
627
|
|
|||||
|
Total other comprehensive loss
|
$
|
(2,483
|
)
|
$
|
(3,255
|
)
|
$
|
(7,930
|
)
|
||
|
Comprehensive income (loss)
|
$
|
27,124
|
|
$
|
18,729
|
|
$
|
(46,048
|
)
|
||
See notes to consolidated financial statements.
F-6
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
|
(In thousands, except share data)
|
||||||
|
ASSETS
|
|
|
|||||
|
Current assets
|
|
|
|||||
|
Cash and cash equivalents
|
$
|
80,648
|
|
$
|
52,499
|
|
|
|
Accounts receivable, net of allowances of $17,035 in 2016 and $19,801 in 2015
|
117,463
|
|
111,020
|
|
|||
|
Accounts receivable from unconsolidated subsidiaries
|
7,404
|
|
3,085
|
|
|||
|
Inventories, net
|
157,342
|
|
165,016
|
|
|||
|
Assets held for sale
|
2,016
|
|
17,497
|
|
|||
|
Prepaid expenses and other
|
16,859
|
|
12,317
|
|
|||
|
Total current assets
|
381,732
|
|
361,434
|
|
|||
|
Property, plant and equipment, net
|
131,049
|
|
132,539
|
|
|||
|
Goodwill
|
6,253
|
|
6,253
|
|
|||
|
Other intangibles, net
|
52,959
|
|
56,843
|
|
|||
|
Deferred income taxes
|
28,380
|
|
42,013
|
|
|||
|
Investment in unconsolidated subsidiaries
|
31,054
|
|
24,643
|
|
|||
|
Deferred costs
|
10,037
|
|
7,065
|
|
|||
|
Other non-current assets
|
26,557
|
|
24,618
|
|
|||
|
Total assets
|
$
|
668,021
|
|
$
|
655,408
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|||||
|
Current liabilities
|
|
|
|||||
|
Accounts payable
|
$
|
128,248
|
|
$
|
100,300
|
|
|
|
Revolving credit agreements of subsidiaries — not guaranteed by the parent company
|
12,714
|
|
8,365
|
|
|||
|
Current maturities of long-term debt of subsidiaries — not guaranteed by the parent company
|
1,744
|
|
1,504
|
|
|||
|
Accrued payroll
|
32,925
|
|
40,854
|
|
|||
|
Accrued cooperative advertising
|
15,056
|
|
10,676
|
|
|||
|
Other current liabilities
|
31,141
|
|
30,047
|
|
|||
|
Total current liabilities
|
221,828
|
|
191,746
|
|
|||
|
Long-term debt of subsidiaries — not guaranteed by the parent company
|
120,295
|
|
160,113
|
|
|||
|
Asset retirement obligations
|
38,262
|
|
39,780
|
|
|||
|
Pension and other postretirement obligations
|
14,271
|
|
10,046
|
|
|||
|
Other long-term liabilities
|
53,072
|
|
52,585
|
|
|||
|
Total liabilities
|
447,728
|
|
454,270
|
|
|||
|
Stockholders’ equity
|
|
|
|||||
|
Common stock:
|
|
|
|||||
|
Class A, par value $1 per share, 5,207,955 shares outstanding (2015 - 5,265,446 shares outstanding)
|
5,208
|
|
5,265
|
|
|||
|
Class B, par value $1 per share, convertible into Class A on a one-for-one basis, 1,570,915 shares outstanding (2015 - 1,571,727 shares outstanding)
|
1,571
|
|
1,572
|
|
|||
|
Capital in excess of par value
|
—
|
|
—
|
|
|||
|
Retained earnings
|
239,441
|
|
217,745
|
|
|||
|
Accumulated other comprehensive loss
|
(25,927
|
)
|
(23,444
|
)
|
|||
|
Total stockholders’ equity
|
220,293
|
|
201,138
|
|
|||
|
Total liabilities and equity
|
$
|
668,021
|
|
$
|
655,408
|
|
|
See notes to consolidated financial statements.
F-7
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
|
|
Year Ended December 31
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
|
(In thousands)
|
||||||||||
|
Operating Activities
|
|
|
|
||||||||
|
Net income (loss)
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
||
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
||||||||
|
Depreciation, depletion and amortization
|
19,276
|
|
23,680
|
|
28,070
|
|
|||||
|
Amortization of deferred financing fees
|
596
|
|
1,089
|
|
229
|
|
|||||
|
Deferred income taxes
|
12,697
|
|
(6,942
|
)
|
(41,347
|
)
|
|||||
|
Centennial asset impairment charge
|
17,443
|
|
—
|
|
105,119
|
|
|||||
|
Loss (gain) on sale of assets
|
146
|
|
(1,811
|
)
|
(7,339
|
)
|
|||||
|
Other
|
1,649
|
|
1,754
|
|
14,667
|
|
|||||
|
Working capital changes, excluding the effect of business acquisitions:
|
|
|
|
||||||||
|
Accounts receivable
|
(10,417
|
)
|
66,486
|
|
(22,506
|
)
|
|||||
|
Inventories
|
4,902
|
|
24,149
|
|
(879
|
)
|
|||||
|
Other current assets
|
(2,632
|
)
|
4,530
|
|
201
|
|
|||||
|
Accounts payable
|
27,098
|
|
(28,867
|
)
|
(2,963
|
)
|
|||||
|
Other current liabilities
|
(6,430
|
)
|
1,950
|
|
(15,335
|
)
|
|||||
|
Net cash provided by operating activities
|
93,935
|
|
108,002
|
|
19,799
|
|
|||||
|
Investing Activities
|
|
|
|
||||||||
|
Expenditures for property, plant and equipment
|
(16,167
|
)
|
(10,615
|
)
|
(57,500
|
)
|
|||||
|
Acquisition of business
|
—
|
|
(413
|
)
|
(25,000
|
)
|
|||||
|
Proceeds from the sale of assets
|
8,060
|
|
3,471
|
|
8,134
|
|
|||||
|
Other
|
(1,710
|
)
|
(734
|
)
|
(568
|
)
|
|||||
|
Net cash used for investing activities
|
(9,817
|
)
|
(8,291
|
)
|
(74,934
|
)
|
|||||
|
Financing Activities
|
|
|
|
||||||||
|
Reductions of long-term debt
|
(46,564
|
)
|
(6,282
|
)
|
(9,399
|
)
|
|||||
|
Net additions (reductions) to revolving credit agreements
|
4,349
|
|
(71,635
|
)
|
73,546
|
|
|||||
|
Cash dividends paid
|
(7,262
|
)
|
(7,296
|
)
|
(7,755
|
)
|
|||||
|
Purchase of treasury shares
|
(6,044
|
)
|
(24,010
|
)
|
(35,075
|
)
|
|||||
|
Financing fees paid
|
(186
|
)
|
—
|
|
(333
|
)
|
|||||
|
Other
|
(3
|
)
|
922
|
|
(5
|
)
|
|||||
|
Net cash provided by (used for) financing activities
|
(55,710
|
)
|
(108,301
|
)
|
20,979
|
|
|||||
|
Effect of exchange rate changes on cash
|
(259
|
)
|
(46
|
)
|
(99
|
)
|
|||||
|
Cash and Cash Equivalents
|
|
|
|
||||||||
|
Increase (decrease) for the year
|
28,149
|
|
(8,636
|
)
|
(34,255
|
)
|
|||||
|
Balance at the beginning of the year
|
52,499
|
|
61,135
|
|
95,390
|
|
|||||
|
Balance at the end of the year
|
$
|
80,648
|
|
$
|
52,499
|
|
$
|
61,135
|
|
||
See notes to consolidated financial statements.
F-8
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
|
Accumulated Other Comprehensive Income (Loss)
|
||||||||||||||||||||||||||||||||
|
|
Class A Common Stock
|
Class B Common Stock
|
Capital in Excess of Par Value
|
Retained Earnings
|
Foreign Currency Translation Adjustment
|
Deferred Gain (Loss) on Available for Sale Securities
|
Deferred Gain (Loss) on Cash Flow Hedging
|
Pension and Postretirement Plan Adjustment
|
Total Stockholders' Equity
|
|||||||||||||||||||||||
|
(In thousands, except per share data)
|
||||||||||||||||||||||||||||||||
|
Balance, January 1, 2014
|
$
|
6,290
|
|
$
|
1,581
|
|
$
|
—
|
|
$
|
302,168
|
|
$
|
(803
|
)
|
$
|
1,021
|
|
$
|
676
|
|
$
|
(13,153
|
)
|
$
|
297,780
|
|
|||||
|
Stock-based compensation
|
28
|
|
—
|
|
2,544
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,572
|
|
||||||||||||||
|
Purchase of treasury shares
|
(664
|
)
|
—
|
|
(2,544
|
)
|
(31,867
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(35,075
|
)
|
||||||||||||||
|
Conversion of Class B to Class A shares
|
8
|
|
(8
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Net loss
|
—
|
|
—
|
|
—
|
|
(38,118
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(38,118
|
)
|
||||||||||||||
|
Cash dividends on Class A and Class B common stock: $1.0225 per share
|
—
|
|
—
|
|
—
|
|
(7,755
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,755
|
)
|
||||||||||||||
|
Current period other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,896
|
)
|
442
|
|
(1,518
|
)
|
(6,483
|
)
|
(9,455
|
)
|
||||||||||||||
|
Reclassification adjustment to net income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
898
|
|
627
|
|
1,525
|
|
||||||||||||||
|
Balance, December 31, 2014
|
$
|
5,662
|
|
$
|
1,573
|
|
$
|
—
|
|
$
|
224,428
|
|
|
$
|
(2,699
|
)
|
|
$
|
1,463
|
|
|
$
|
56
|
|
|
$
|
(19,009
|
)
|
$
|
211,474
|
|
|
|
Stock-based compensation
|
45
|
|
—
|
|
2,196
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,241
|
|
||||||||||||||
|
Purchase of treasury shares
|
(443
|
)
|
—
|
|
(2,196
|
)
|
(21,371
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(24,010
|
)
|
||||||||||||||
|
Conversion of Class B to Class A shares
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
21,984
|
|
—
|
|
—
|
|
—
|
|
—
|
|
21,984
|
|
||||||||||||||
|
Cash dividends on Class A and Class B common stock: $1.0450 per share
|
—
|
|
—
|
|
—
|
|
(7,296
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,296
|
)
|
||||||||||||||
|
Current period other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,756
|
)
|
17
|
|
(577
|
)
|
(1,204
|
)
|
(4,520
|
)
|
||||||||||||||
|
Reclassification adjustment to net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
409
|
|
856
|
|
1,265
|
|
||||||||||||||||
|
Balance, December 31, 2015
|
$
|
5,265
|
|
$
|
1,572
|
|
$
|
—
|
|
$
|
217,745
|
|
|
$
|
(5,455
|
)
|
|
$
|
1,480
|
|
$
|
(112
|
)
|
|
$
|
(19,357
|
)
|
|
$
|
201,138
|
|
|
|
Stock-based compensation
|
51
|
|
—
|
|
5,286
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5,337
|
|
||||||||||||||
|
Purchase of treasury shares
|
(109
|
)
|
—
|
|
(5,286
|
)
|
(649
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(6,044
|
)
|
||||||||||||||
|
Conversion of Class B to Class A shares
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
||||||||||||||
|
Net income
|
—
|
|
—
|
|
—
|
|
29,607
|
|
—
|
|
—
|
|
—
|
|
—
|
|
29,607
|
|
||||||||||||||
|
Cash dividends on Class A and Class B common stock: $1.0650 per share
|
—
|
|
—
|
|
—
|
|
(7,262
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
(7,262
|
)
|
||||||||||||||
|
Current period other comprehensive income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
(2,078
|
)
|
413
|
|
(252
|
)
|
(2,011
|
)
|
(3,928
|
)
|
||||||||||||||
|
Reclassification adjustment to net income (loss)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
757
|
|
688
|
|
1,445
|
|
||||||||||||||
|
Balance, December 31, 2016
|
$
|
5,208
|
|
$
|
1,571
|
|
$
|
—
|
|
$
|
239,441
|
|
|
$
|
(7,533
|
)
|
|
$
|
1,893
|
|
$
|
393
|
|
|
$
|
(20,680
|
)
|
|
$
|
220,293
|
|
|
See notes to consolidated financial statements.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 1—
Principles of Consolidation and Nature of Operations
The Consolidated Financial Statements include the accounts of NACCO Industries, Inc. (the parent company or “NACCO”) and its wholly owned subsidiaries (“NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. The Company's subsidiaries operate in the following principal industries: mining, small appliances and specialty retail. The Company manages its subsidiaries primarily by industry.
The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) mine coal primarily for use in power generation and provide value-added services for natural resource companies. Hamilton Beach Brands, Inc. (“HBB”) is a leading designer, marketer and distributor of small electric household and specialty housewares appliances as well as commercial products for restaurants, bars and hotels. The Kitchen Collection, LLC (“KC”) is a national specialty retailer of kitchenware operating under the Kitchen Collection
®
store name in outlet and traditional malls throughout the United States.
NACoal has the following operating coal mining subsidiaries: Bisti Fuels Company, LLC ("Bisti"), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Liberty Fuels Company, LLC (“Liberty”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).
All of the operating coal mining subsidiaries other than MLMC are unconsolidated (collectively the "Unconsolidated Mines"). The Unconsolidated Mines were formed to develop, construct and/or operate surface coal mines under long-term contracts and are capitalized primarily with debt financing provided by or supported by their respective customers, and without recourse to NACCO and NACoal. The contracts with the customers of the Unconsolidated Mines provide for reimbursement to the company at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus an agreed upon fee per btu of heating value delivered. The fees earned at each mine adjust over time in line with various indices which reflect general U.S. inflation rates.
Although NACoal owns
100%
of the equity and manages the daily operations of the Unconsolidated Mines, the Company has determined that the equity capital provided by NACoal is not sufficient to adequately finance the ongoing activities or absorb any expected losses without additional support from the customers. The customers have a controlling financial interest and have the power to direct the activities that most significantly affect the economic performance of the entities. As a result, NACoal is not the primary beneficiary and therefore does not consolidate these entities' financial position or results of operations. The income taxes resulting from operations of the Unconsolidated Mines are solely the responsibility of the Company. The pre-tax income from the Unconsolidated Mines is reported on the line “Earnings of unconsolidated mines” in the Consolidated Statements of Operations, with related taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the Unconsolidated Mines above operating profit as they are an integral component of the Company's business and operating results.
MLMC is a consolidated entity because NACoal pays all operating costs and provides the capital for the mine. MLMC sells coal to its customer at a contractually agreed upon price which adjusts monthly, primarily based on changes in the level of established indices which reflect general U.S. inflation rates. Centennial Natural Resources, LLC ("Centennial"), which ceased coal production in the fourth quarter of 2015, is also a consolidated entity.
NACoal provides value-added mining services for independently owned limerock quarries through its North American Mining ("NAM") division. NAM is reimbursed by its customers based on actual costs plus a management fee. The financial results for NAM are included in consolidated mining operations or unconsolidated mining operations based on each entity's structure.
NACoal also provides coal handling, processing and drying services for a number of customers. For example, NoDak Energy Services, LLC ("NoDak") operates and maintains a coal processing facility for a customer's power plant. The pre-tax income from NoDak is reported on the line "Income from other unconsolidated affiliates" in the "Other (income) expense" section of the Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes. North American Coal Royalty Company, a consolidated entity, provides surface and mineral acquisition and lease maintenance services related to the Company's operations.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
All of the unconsolidated subsidiaries are accounted for under the equity method.
See Note 19
for further discussion.
NOTE 2—
Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and judgments. These estimates and judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities (if any) at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less.
Accounts Receivable, Net of Allowances:
Allowances for doubtful accounts are maintained against accounts receivable for estimated losses resulting from the inability of customers to make required payments. These allowances are based on both recent trends of certain customers estimated to be a greater credit risk as well as general trends of the entire customer pool. Accounts are written off against the allowance when it becomes evident collection will not occur.
Inventories:
NACoal and HBB inventories are stated at the lower of cost or net realizable value. The weighted average method is used for coal inventory. The first-in, first-out (“FIFO”) method is used for HBB's inventory. KC retail inventories are stated at the lower of cost or market using the retail inventory method. Reserves are maintained for estimated obsolescence or excess inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Upon a subsequent sale or disposal of the impaired inventory, the corresponding reserve for impaired value is relieved to ensure that the cost basis of the inventory reflects any write-downs.
Property, Plant and Equipment, Net:
Property, plant and equipment are initially recorded at cost. Depreciation, depletion and amortization are provided in amounts sufficient to amortize the cost of the assets, including assets recorded under capital leases, over their estimated useful lives using the straight-line method. Buildings and building improvements are depreciated using a
40
year life or, at NACoal, over the life of the mine, which is generally
30
years. Estimated lives for machinery and equipment range from
three
to
15 years
. Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease. The units-of-production method is used to amortize certain tooling for sourced products and certain coal-related assets based on estimated recoverable tonnages. Repairs and maintenance costs are generally expensed when incurred. Asset retirement costs associated with asset retirement obligations are capitalized with the carrying amount of the related long-lived asset and depreciated over the asset's estimated useful life.
Long-Lived Assets:
The Company periodically evaluates long-lived assets for impairment when changes in circumstances or the occurrence of certain events indicate the carrying amount of an asset may not be recoverable. Upon identification of indicators of impairment, the Company evaluates the carrying value of the asset by comparing the estimated future undiscounted cash flows generated from the use of the asset and its eventual disposition with the asset's net carrying value. If the carrying value of an asset is considered impaired, an impairment charge is recorded for the amount that the carrying value of the long-lived asset exceeds its fair value. Fair value is estimated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Coal Supply Agreement:
The coal supply agreement represents a long-term supply agreement with a NACoal customer and was recorded based on the fair value at the date of acquisition. The coal supply agreement is amortized based on units of production over the term of the agreement, which is estimated to be
30 years
. The Company reviews identified intangible assets for impairment when changes in circumstances or the occurrence of certain events indicate potential impairment.
Self-insurance Liabilities:
The Company is generally self-insured for product liability, environmental liability, medical claims, certain workers’ compensation claims and certain closed mine liabilities. For product liability, catastrophic insurance coverage is retained for potentially significant individual claims. An estimated provision for claims reported and for claims incurred but not yet reported under the self-insurance programs is recorded and revised periodically based on industry trends, historical experience and management judgment. In addition, industry trends are considered within management's judgment for valuing claims. Changes in assumptions for such matters as legal judgments and settlements, inflation rates, medical costs and actual experience could cause estimates to change in the near term.
Revenue Recognition:
Revenues are generally recognized when title transfers and risk of loss passes to the customer. Under its mining contracts, the Company recognizes revenue as the coal or limerock is delivered or services are performed. Revenues at HBB are recognized when customer orders are completed and shipped. Revenues at KC are recognized at the point of sale when payment is made and customers take possession of the merchandise in stores.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The Company's products generally are not sold with the right of return. Based on the Company's historical experience, a portion of KC and HBB products sold are estimated to be returned due to reasons such as buyer remorse, duplicate gifts received, product failure and excess inventory stocked by the customer, which, subject to certain terms and conditions, the Company will agree to accept. The Company records estimated reductions to revenues at the time of the sale based upon this historical experience and the limited right of return provided to the Company's customers.
The Company also records estimated reductions to revenues for customer programs and incentive offerings, including special pricing agreements, price competition, promotions and other volume-based incentives. At HBB, net sales represent gross sales less cooperative advertising, other volume-based incentives, estimated returns and allowances for defective products. At KC, retail markdowns are incorporated into KC's retail method of accounting for cost of sales.
Advertising Costs:
Advertising costs, except for direct response advertising, are expensed as incurred. Total advertising expense was
$22.7 million
,
$21.8 million
and
$20.4 million
in
2016
,
2015
and
2014
, respectively. Included in these advertising costs are amounts related to cooperative advertising programs at HBB that are recorded as a reduction of sales in the Consolidated Statements of Operations as related revenues are recognized. Direct response advertising, which consists primarily of costs to produce television commercials for HBB products, is capitalized and amortized over the expected period of future benefits. No assets related to direct response advertising were capitalized at
December 31, 2016
or
2015
.
Product Development Costs:
Expenses associated with the development of new products and changes to existing products are charged to expense as incurred. These costs amounted to
$9.7 million
in
2016
and
$9.6 million
in both
2015
and
2014
.
Shipping and Handling Costs:
Shipping and handling costs billed to customers are recognized as revenue and shipping and handling costs incurred by the Company are included in cost of sales.
Taxes Collected from Customers and Remitted to Governmental Authorities:
The Company collects various taxes and fees as an agent in connection with the sale of products and remits these amounts to the respective taxing authorities. These taxes and fees have been presented on a net basis in the Consolidated Statements of Operations and are recorded as a liability until remitted to the respective taxing authority.
Stock Compensation:
The Company maintains long-term incentive programs at all of its subsidiaries. The parent company has stock compensation plans that allow the grant of shares of Class A common stock, subject to restrictions, as a means of retaining and rewarding selected employees for long-term performance and to increase ownership in the Company. Shares awarded under the plans are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends at the earliest of (i)
five years
after the participant's retirement date, (ii)
ten years
from the award date, or (iii) the participant's death or permanent disability. Pursuant to the plans, the Company issued
62,425
and
37,986
shares related to the years ended
December 31, 2016
and
2015
, respectively. After the issuance of these shares, there were
100,757
shares of Class A common stock available for issuance under these plans. Compensation expense related to these share awards was
$4.3 million
(
$2.8 million
net of tax),
$1.7 million
(
$1.1 million
net of tax) and
$1.8 million
(
$1.2 million
net of tax) for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Compensation expense represents fair value based on the market price of the shares of Class A common stock at the grant date.
The Company also has a stock compensation plan for non-employee directors of the Company under which a portion of the non-employee director's annual retainer is paid in restricted shares of Class A common stock. For the year ended December 31, 2016,
$75,000
of the non-employee director's annual retainer of
$131,000
was paid in restricted shares of Class A common stock. For the year ended
December 31, 2015
,
$75,000
of the non-employee director's annual retainer of
$131,000
was paid in restricted shares of Class A common stock. For the year ended
December 31, 2014
,
$69,000
of the non-employee director's annual retainer of
$125,000
was paid in restricted shares of Class A common stock. Shares awarded under the plan are fully vested and entitle the stockholder to all rights of common stock ownership except that shares may not be assigned, pledged or otherwise transferred during the restriction period. In general, the restriction period ends at the earliest of (i)
ten years
from the award date, (ii) the date of the director's death or permanent disability, (iii)
five years
(or earlier with the approval of the Board of Directors) after the director's date of retirement from the Board of Directors, or (iv) the date the director has both retired from the Board of Directors and has reached age
70
. Pursuant to this plan, the Company issued
10,690
,
11,496
and
10,446
shares related to the years ended
December 31, 2016
,
2015
and
2014
, respectively. In addition to the mandatory retainer fee received in restricted stock, directors may elect to receive shares of Class A common stock in lieu of cash for up to
100%
of the balance of their annual retainer, meeting attendance fees, committee retainer and any committee chairman's fees. These voluntary shares are not subject to any restrictions. Total shares issued under voluntary elections were
2,282
in
2016
,
2,553
in
2015
, and
1,335
in
2014
. After the issuance of these shares, there were
34,240
shares of Class A common stock available for issuance under this
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
plan. Compensation expense related to these awards was
$0.9 million
(
$0.6 million
net of tax),
$0.7 million
(
$0.5 million
net of tax) and
$0.6 million
(
$0.4 million
net of tax) for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Compensation expense represents fair value based on the market price of the shares of Class A common stock at the grant date.
Foreign Currency:
Assets and liabilities of foreign operations are translated into U.S. dollars at the fiscal year-end exchange rate. The related translation adjustments are recorded as a separate component of stockholders’ equity. Revenues and expenses of all foreign operations are translated using average monthly exchange rates prevailing during the year.
Financial Instruments and Derivative Financial Instruments:
Financial instruments held by the Company include cash and cash equivalents, accounts receivable, accounts payable, revolving credit agreements, long-term debt, interest rate swap agreements and forward foreign currency exchange contracts. The Company does not hold or issue financial instruments or derivative financial instruments for trading purposes.
The Company uses forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies. The Company offsets fair value amounts related to foreign currency exchange contracts executed with the same counterparty. These contracts hedge firm commitments and forecasted transactions relating to cash flows associated with sales and purchases denominated in currencies other than the subsidiaries’ functional currencies. Changes in the fair value of forward foreign currency exchange contracts that are effective as hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”). Deferred gains or losses are reclassified from AOCI to the Consolidated Statement of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in cost of sales. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and generally recognized in cost of sales.
The Company uses interest rate swap agreements to partially reduce risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Terms of the interest rate swap agreements require the Company to receive a variable interest rate and pay a fixed interest rate. The Company's interest rate swap agreements and its variable rate financings are predominately based upon LIBOR (London Interbank Offered Rate). Changes in the fair value of interest rate swap agreements that are effective as hedges are recorded in AOCI. Deferred gains or losses are reclassified from AOCI to the Consolidated Statement of Operations in the same period as the gains or losses from the underlying transactions are recorded and are generally recognized in interest expense. The ineffective portion of derivatives that are classified as hedges is immediately recognized in earnings and included on the line “Other” in the “Other income (expense)” section of the Consolidated Statements of Operations.
Interest rate swap agreements and forward foreign currency exchange contracts held by the Company have been designated as hedges of forecasted cash flows. The Company does not currently hold any nonderivative instruments designated as hedges or any derivatives designated as fair value hedges.
The Company periodically enters into foreign currency exchange contracts that do not meet the criteria for hedge accounting. These derivatives are used to reduce the Company's exposure to foreign currency risk related to forecasted purchase or sales transactions or forecasted intercompany cash payments or settlements. Gains and losses on these derivatives are included on the line “Other” in the “Other income (expense)” section of the Consolidated Statements of Operations.
Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations.
See Note 9
for further discussion of derivative financial instruments.
Fair Value Measurements:
The Company accounts for the fair value measurement of its financial assets and liabilities in accordance with U.S. generally accepted accounting principles, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
A fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.
Described below are the three levels of inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2 - Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3 - Unobservable inputs are used when little or no market data is available.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
See Note 10
for further discussion of fair value measurements.
Recently Issued Accounting Standards
Accounting Standards Adopted in 2016:
In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, "Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)." ASU 2015-15 amends Subtopic 835-30 to include that the SEC would not object to the deferral and presentation of debt issuance costs as an asset and subsequent amortization of debt issuance costs over the term of the line-of-credit arrangement, whether or not there are any outstanding borrowings on the line-of-credit arrangement. The adoption of this guidance did not have a material effect on the Company's financial position, results of operations, cash flows or related disclosures.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory - Simplifying the Measurement of Inventory," which requires that inventory be measured at lower of cost or net realizable value. The Company elected early adoption of this guidance, which did not have a material effect on the Company's financial position, results of operations, cash flows and related disclosures.
Accounting Standards Not Yet Adopted:
In May 2014, the FASB codified in ASC 606, "Revenue Recognition - Revenue from Contracts with Customers," which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires an entity to recognize revenue in an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers and provide additional disclosures. As amended, the effective date for public entities is annual reporting periods beginning after December 15, 2017 and interim periods therein. The Company anticipates adopting the new revenue guidance effective January 1, 2018 using the modified retrospective method with the cumulative effect of initially applying the standard recognized as an adjustment to equity. The Company has developed a project plan with respect to its implementation of this standard, including identification of revenue streams and review of contracts and procedures currently in place, and is evaluating the impact on the Company's financial position, results of operations and cash flows. The adoption of this guidance will result in increased disclosures to help users of financial statements understand the nature, amount and timing of revenue and cash flows arising from contracts. The Company is in the process of identifying and implementing changes to processes and controls to meet the standard's updated reporting and disclosure requirements and continues to update its assessment of the impact of the standard. The Company expects to further its assessment of the financial impact of the new guidance on its consolidated financial statements by mid-2017.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which modifies how entities measure equity investments and present changes in the fair value of financial liabilities; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; changes presentation and disclosure requirements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is evaluating the impact that this new guidance will have on the Company’s financial position, results of operations, cash flows and related disclosures.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)," which requires an entity to recognize assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently evaluating how and to what extent ASU 2016-02 will affect the Company's financial position, results of operations, cash flows and related disclosures.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 3—
Other Transactions
NACoal
: During the fourth quarter of 2016, NACoal recorded a
$3.3 million
charge related to the resolution of a legal matter. This charge is recorded on the line "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
During 2014, NACoal determined that indicators of impairment existed at Centennial and, as a result, reviewed Centennial's long-lived assets for impairment. NACoal recorded a non-cash, asset impairment charge of
$105.1 million
in 2014 for Centennial's long-lived asset group as "Centennial asset impairment charge" in the Consolidated Statements of Operations. During the third quarter of 2015, revisions were made to Centennial's asset retirement obligations due to revised estimated cash flows and the timing of those cash flows, resulting in a
$7.5 million
charge. Also as a result of its decision to cease mining operations, the Company recognized a
$0.6 million
charge for severance and other employee benefit costs in 2015. Both of these charges are recorded on the line "Cost of sales" in the Consolidated Statements of Operations.
See Note 7
for further discussion of the Company's asset retirement obligations.
Centennial ceased active mining operations at the end of 2015. As of December 31, 2015, the Company began actively marketing Centennial's mine machinery and equipment as assets held for sale. During the third quarter of 2016, the Company's NACoal subsidiary recorded an additional non-cash impairment charge of
$17.4 million
, reducing the carrying value of coal, land and real estate and assets held for sale at Centennial. These charges are recorded on the line "Centennial asset impairment charge" in the Consolidated Statements of Operations. See
Note 10
for further discussion of the Company's asset impairment charges.
During 2014, NACoal recognized a gain of
$3.5 million
from the sale of assets to Mississippi Power Company. These assets were previously classified as held for sale. Also during 2014, NACoal recognized an unrelated gain of
$2.2 million
from the sale of land.
HBB:
During 2014, HBB completed the acquisition of Weston Products, LLC, which HBB refers to as Weston Brands, in exchange for cash consideration of
$25.4 million
, of which
$25.0 million
was paid at closing and
$0.4 million
was paid in 2015. The results of Weston Brands operations have been included in the Company's Consolidated Financial Statements since December 16, 2014.
NOTE 4—
Inventories
Inventories are summarized as follows:
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
Coal - NACoal
|
$
|
13,137
|
|
$
|
16,652
|
|
|
|
Mining supplies - NACoal
|
15,790
|
|
21,755
|
|
|||
|
Total inventories at weighted average cost
|
28,927
|
|
38,407
|
|
|||
|
Sourced inventories - HBB
|
95,008
|
|
97,511
|
|
|||
|
Retail inventories - KC
|
33,407
|
|
29,098
|
|
|||
|
Total inventories
|
$
|
157,342
|
|
$
|
165,016
|
|
|
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 5—
Property, Plant and Equipment, Net
Property, plant and equipment, net includes the following:
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
Coal lands and real estate:
|
|
|
|||||
|
NACoal
|
$
|
48,636
|
|
$
|
54,928
|
|
|
|
HBB
|
226
|
|
226
|
|
|||
|
NACCO and Other
|
469
|
|
469
|
|
|||
|
|
49,331
|
|
55,623
|
|
|||
|
Plant and equipment:
|
|
|
|||||
|
NACoal
|
141,440
|
|
126,939
|
|
|||
|
HBB
|
53,495
|
|
49,002
|
|
|||
|
KC
|
25,149
|
|
26,119
|
|
|||
|
NACCO and Other
|
5,007
|
|
4,978
|
|
|||
|
|
225,091
|
|
207,038
|
|
|||
|
Property, plant and equipment, at cost
|
274,422
|
|
262,661
|
|
|||
|
Less allowances for depreciation, depletion and amortization
|
143,373
|
|
130,122
|
|
|||
|
|
$
|
131,049
|
|
$
|
132,539
|
|
|
Total depreciation, depletion and amortization expense on property, plant and equipment was
$15.4 million
,
$19.7 million
and
$24.8 million
during
2016
,
2015
, and
2014
, respectively.
NOTE 6—
Intangible Assets
Intangible assets other than goodwill, which are subject to amortization, consist of the following:
|
|
Gross Carrying
Amount
|
Accumulated
Amortization
|
Net
Balance
|
||||||||
|
Balance at December 31, 2016
|
|
|
|
||||||||
|
NACoal:
|
|||||||||||
|
Coal supply agreement
|
$
|
84,200
|
|
$
|
(38,523
|
)
|
$
|
45,677
|
|
||
|
HBB:
|
|||||||||||
|
Customer relationships
|
$
|
5,760
|
|
$
|
(1,960
|
)
|
$
|
3,800
|
|
||
|
Trademarks
|
3,100
|
|
(408
|
)
|
2,692
|
|
|||||
|
Other intangibles
|
1,240
|
|
(450
|
)
|
790
|
|
|||||
|
$
|
10,100
|
|
$
|
(2,818
|
)
|
$
|
7,282
|
|
|||
|
Balance at December 31, 2015
|
|
|
|
||||||||
|
NACoal:
|
|||||||||||
|
Coal supply agreement
|
$
|
84,200
|
|
$
|
(36,020
|
)
|
$
|
48,180
|
|
||
|
HBB:
|
|||||||||||
|
Customer relationships
|
$
|
5,760
|
|
$
|
(1,000
|
)
|
$
|
4,760
|
|
||
|
Trademarks
|
3,100
|
|
(208
|
)
|
2,892
|
|
|||||
|
Other intangibles
|
1,240
|
|
(229
|
)
|
1,011
|
|
|||||
|
$
|
10,100
|
|
$
|
(1,437
|
)
|
$
|
8,663
|
|
|||
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Amortization expense for intangible assets was
$3.9 million
,
$4.0 million
and
$3.3 million
in
2016
,
2015
and
2014
, respectively.
Expected annual amortization expense of NACoal's coal supply agreement for the next five years is as follows:
$2.8 million
in
2017
,
$2.9 million
in
2018
,
2019
,
2020
and
2021
. The coal supply agreement is amortized based on units of production over the term of the agreement, which is estimated to be
30
years.
Expected annual amortization expense of HBB's intangible assets for the next five years is
$1.4 million
in 2017, 2018 and 2019,
$1.2 million
in 2020 and
$0.2 million
in 2021. The weighted average amortization period for HBB's intangible assets is approximately
9 years
.
NOTE 7—
Asset Retirement Obligations
NACoal's asset retirement obligations are principally for costs to dismantle certain mining equipment at the end of the life of the mine as well as for costs to close its surface mines and reclaim the land it has disturbed as a result of its normal mining activities. The Company determined the amounts of these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. The accretion of the liability is being recognized over the estimated life of each individual asset retirement obligation and is recorded in the line “Cost of sales” in the accompanying Consolidated Statements of Operations. The associated asset is recorded in “Property, Plant and Equipment, net” in the accompanying Consolidated Balance Sheets.
Bellaire Corporation (“Bellaire”) is a non-operating subsidiary of the Company with legacy liabilities relating to closed mining operations, primarily former Eastern U.S. underground coal mining operations. These legacy liabilities include obligations for water treatment and other environmental remediation that arose as part of the normal course of closing these underground mining operations. The Company determined the amounts of these obligations based on estimates adjusted for inflation and then discounted the amounts using a credit-adjusted risk-free interest rate. The accretion of the liability is recognized over the estimated life of the asset retirement obligation and is recorded in the line “Closed mine obligations” in the accompanying Consolidated Statements of Operations. Since Bellaire's properties are no longer active operations, no associated asset has been capitalized.
A reconciliation of the Company's beginning and ending aggregate carrying amount of the asset retirement obligations are as follows:
|
|
NACCO
Consolidated
|
|||
|
Balance at January 1, 2015
|
$
|
41,819
|
|
|
|
Liabilities settled during the period
|
(7,835
|
)
|
||
|
Accretion expense
|
2,361
|
|
||
|
Revision of estimated cash flows
|
7,247
|
|
||
|
Balance at December 31, 2015
|
$
|
43,592
|
|
|
|
Liabilities settled during the period
|
(2,321
|
)
|
||
|
Accretion expense
|
2,659
|
|
||
|
Revision of estimated cash flows
|
(1,825
|
)
|
||
|
Balance at December 31, 2016
|
$
|
42,105
|
|
|
Asset retirement obligations totaled
$42.1 million
at
December 31, 2016
, of which,
$3.8 million
is included on the line "Other current liabilities" and
$38.3 million
on the line "Asset retirement obligations" in the Consolidated Balance Sheets.
Prior to 2014, Bellaire established a
$5.0 million
Mine Water Treatment Trust to provide a financial assurance mechanism in order to assure the long-term treatment of post-mining discharges. The fair value of the Mine Water Treatment assets, which are recognized as a component of "Other Non-Current Assets" on the Consolidated Balance Sheets, are
$7.9 million
at
December 31, 2016
and are legally restricted for purposes of settling the Bellaire asset retirement obligation.
See Note 10
for further fair value disclosure.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 8—
Current and Long-Term Financing
Financing arrangements are obtained and maintained at the subsidiary level. NACCO has not guaranteed any borrowings of its subsidiaries.
The following table summarizes the Company's available and outstanding borrowings:
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
Total outstanding borrowings:
|
|
|
|||||
|
Revolving credit agreements:
|
|
|
|||||
|
NACoal
|
$
|
80,000
|
|
$
|
100,000
|
|
|
|
HBB
|
37,917
|
|
57,513
|
|
|||
|
|
$
|
117,917
|
|
$
|
157,513
|
|
|
|
|
|
||||||
|
Capital lease obligations and other term loans — NACoal
|
$
|
16,039
|
|
$
|
11,617
|
|
|
|
Other debt — HBB
|
797
|
|
852
|
|
|||
|
Total debt outstanding
|
$
|
134,753
|
|
$
|
169,982
|
|
|
|
Current portion of borrowings outstanding:
|
|
|
|||||
|
NACoal
|
$
|
1,744
|
|
$
|
1,504
|
|
|
|
HBB
|
12,714
|
|
8,365
|
|
|||
|
|
$
|
14,458
|
|
$
|
9,869
|
|
|
|
Long-term portion of borrowings outstanding:
|
|
|
|||||
|
NACoal
|
$
|
94,295
|
|
$
|
110,113
|
|
|
|
HBB
|
26,000
|
|
50,000
|
|
|||
|
|
$
|
120,295
|
|
$
|
160,113
|
|
|
|
Total available borrowings, net of limitations, under revolving credit agreements:
|
|
|
|||||
|
NACoal
|
$
|
223,933
|
|
$
|
223,795
|
|
|
|
HBB
|
112,975
|
|
111,590
|
|
|||
|
KC
|
20,525
|
|
18,299
|
|
|||
|
|
$
|
357,433
|
|
$
|
353,684
|
|
|
|
Unused revolving credit agreements:
|
|
|
|||||
|
NACoal
|
$
|
143,933
|
|
$
|
123,795
|
|
|
|
HBB
|
75,058
|
|
54,077
|
|
|||
|
KC
|
20,525
|
|
18,299
|
|
|||
|
|
$
|
239,516
|
|
$
|
196,171
|
|
|
|
Weighted average stated interest rate on total borrowings:
|
|
|
|||||
|
NACoal
|
2.9
|
%
|
2.4
|
%
|
|||
|
HBB
|
2.3
|
%
|
2.3
|
%
|
|||
|
Weighted average effective interest rate on total borrowings (including interest rate swap agreements):
|
|||||||
|
NACoal
|
3.4
|
%
|
3.3
|
%
|
|||
|
HBB
|
2.7
|
%
|
2.7
|
%
|
|||
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Annual maturities of total debt, excluding capital leases, are as follows:
|
2017
|
$
|
202
|
|
|
2018
|
80,213
|
|
|
|
2019
|
225
|
|
|
|
2020
|
236
|
|
|
|
2021
|
38,965
|
|
|
|
Thereafter
|
6,247
|
|
|
|
|
$
|
126,088
|
|
Including swap settlements, interest paid on total debt was
$5.8 million
,
$6.5 million
and
$7.4 million
during
2016
,
2015
and
2014
, respectively. Interest capitalized was less than
$0.1 million
in both
2016
and
2015
.
NACoal:
NACoal has an unsecured revolving line of credit of up to
$225.0 million
(the “NACoal Facility”) that expires in November 2018. Borrowings outstanding under the NACoal Facility were
$80.0 million
at
December 31, 2016
. At
December 31, 2016
, the excess availability under the NACoal Facility was
$143.9 million
, which reflects a reduction for outstanding letters of credit of
$1.1 million
.
The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility. Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved. The applicable margins, effective
December 31, 2016
, for base rate and LIBOR loans were
1.00%
and
2.00%
, respectively. The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios. The commitment fee was
0.35%
on the unused commitment at
December 31, 2016
. The weighted average interest rate applicable to the NACoal Facility at
December 31, 2016
was
3.39%
including the floating rate margin and the effect of the interest rate swap agreements.
The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of
3.50
to 1.00 and an interest coverage ratio of not less than
4.00
to 1.00. The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of
3.00
to 1.00 in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of
$15.0 million
. At
December 31, 2016
, NACoal was in compliance with all financial covenants in the NACoal Facility.
HBB:
HBB has a
$115.0 million
senior secured floating-rate revolving credit facility (the “HBB Facility”) that expires in June 2021. The obligations under the HBB Facility are secured by substantially all of HBB's assets. The approximate book value of HBB's assets held as collateral under the HBB Facility was
$257.2 million
as of
December 31, 2016
. At
December 31, 2016
, the borrowing base under the HBB Facility was
$113.0 million
and borrowings outstanding were
$37.9 million
. At
December 31, 2016
, the excess availability under the HBB Facility was
$75.1 million
.
The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible accounts receivable, inventory and trademarks of the borrowers, as defined in the HBB Facility. Adjustments to reserves booked against these assets, including inventory reserves, will change the eligible borrowing base and thereby impact the liquidity provided by the HBB Facility. A portion of the availability is denominated in Canadian dollars to provide funding to HBB's Canadian subsidiary. Borrowings bear interest at a floating rate, which can be a base rate, LIBOR or bankers' acceptance rate, as defined in the HBB Facility, plus an applicable margin. The applicable margins, effective
December 31, 2016
, for base rate loans and LIBOR loans denominated in U.S. dollars were
0.00%
and
1.50%
, respectively. The applicable margins, effective
December 31, 2016
, for base rate loans and bankers' acceptance loans denominated in Canadian dollars were
0.00%
and
1.50%
, respectively. The HBB Facility also requires a fee of
0.25%
per annum on the unused commitment. The margins and unused commitment fee under the HBB Facility are subject to quarterly adjustment based on average excess availability. The weighted average interest rate applicable to the HBB Facility at
December 31, 2016
was
2.67%
including the floating rate margin and the effect of the interest rate swap agreement.
The HBB Facility includes restrictive covenants, which, among other things, limit the payment of dividends to NACCO, subject to achieving availability thresholds. Dividends are discretionary to the extent that for the thirty days prior to the
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
dividend payment date, and after giving effect to the dividend payment, HBB maintains Excess Availability of not less than
$25.0 million
. The HBB Facility also requires HBB to achieve a minimum fixed charge coverage ratio in certain circumstances, as defined in the HBB Facility. At
December 31, 2016
, HBB was in compliance with all financial covenants in the HBB Facility.
KC:
KC has a
$25.0 million
secured revolving line of credit that expires in September 2019 (the “KC Facility”). The obligations under the KC Facility are secured by substantially all assets of KC. The approximate book value of KC's assets held as collateral under the KC Facility was
$51.0 million
as of
December 31, 2016
. At
December 31, 2016
, the borrowing base and excess availability under the KC Facility were
$20.5 million
. KC had no borrowings outstanding under the KC Facility as of
December 31, 2016
.
The maximum availability under the KC Facility is derived from a borrowing base formula using KC's eligible inventory and eligible credit card accounts receivable, as defined in the KC Facility. Borrowings bear interest at a floating rate plus a margin based on the excess availability under the agreement, as defined in the KC Facility, which can be either a base rate plus a margin of
1.00%
or LIBOR plus a margin of
2.00%
as of
December 31, 2016
. The KC Facility also requires a fee of
0.32%
per annum on the unused commitment.
The KC Facility allows for the payment of dividends to NACCO, subject to certain restrictions based on availability and meeting a fixed charge coverage ratio as described in the KC Facility. Dividends are limited to (i)
$6.0 million
in any
twelve
-month period, so long as KC has excess availability, as defined in the KC Facility, of at least
$6.3 million
after giving effect to such payment and maintaining a minimum fixed charge coverage ratio of
1.1
to 1.0, as defined in the KC Facility; (ii)
$2.0 million
in any
twelve
-month period, so long as KC has excess availability, as defined in the KC Facility, of at least
$6.3 million
after giving effect to such payment and (iii) in such amounts as determined by KC, so long as KC has excess availability under the KC Facility of
$12.5 million
after giving effect to such payment. At
December 31, 2016
, KC was in compliance with all financial covenants in the KC Facility.
NOTE 9—
Derivative Financial Instruments
The Company measures its derivatives at fair value using significant observable inputs, which is Level 2 as defined in the fair value hierarchy. The Company uses a present value technique that incorporates the LIBOR swap curve, foreign currency spot rates and foreign currency forward rates to value its derivatives, including its interest rate swap agreements and foreign currency exchange contracts, and also incorporates the effect of its subsidiary and counterparty credit risk into the valuation.
Foreign Currency Derivatives
: HBB held forward foreign currency exchange contracts with total notional amounts of
$9.0 million
and
$7.3 million
at
December 31, 2016
and
2015
, respectively, denominated primarily in Canadian dollars and Mexican pesos. The fair value of these contracts approximated a net
receivable
of
$0.1 million
and
$0.4 million
at
December 31, 2016
and
2015
, respectively.
Forward foreign currency exchange contracts that qualify for hedge accounting are used to hedge transactions expected to occur within the next twelve months. The mark-to-market effect of forward foreign currency exchange contracts that are considered effective as hedges has been included in AOCI.
Interest Rate Derivatives
: HBB has interest rate swaps that hedge interest payments on its one-month LIBOR borrowings. During the second quarter of 2016, HBB entered into
four
delayed start interest rate swap agreements. All swaps have been designated as cash flow hedges.
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table summarizes the notional amounts, related rates and remaining terms of interest rate swap agreements active and delayed at
December 31
in millions:
|
|
Notional Amount
|
Average Fixed Rate
|
Remaining Term at
|
||||||||||||
|
|
2016
|
2015
|
2016
|
2015
|
December 31, 2016
|
||||||||||
|
HBB - Interest rate swaps
|
$
|
20.0
|
|
$
|
20.0
|
|
1.4
|
%
|
1.4
|
%
|
extending to January 2020
|
||||
|
HBB - Delayed start interest rate swaps
|
$
|
15.0
|
|
$
|
—
|
|
1.6
|
%
|
—
|
%
|
extending to January 2024
|
||||
|
HBB - Delayed start interest rate swaps
|
$
|
10.0
|
|
$
|
—
|
|
1.7
|
%
|
—
|
%
|
extending to January 2024
|
||||
The fair value of HBB's interest rate swap agreements was a net
receivable
of
$0.8 million
at
December 31, 2016
and net
receivable
of less than
$0.1 million
at
December 31, 2015
. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in AOCI. The interest rate swap agreements held by HBB on
December 31, 2016
are expected to continue to be effective as hedges.
NACoal has interest rate swaps that hedge interest payments on its one-month LIBOR borrowings. The following table summarizes the notional amounts, related rates and remaining terms of the interest rate swap agreement active at December 31 in millions:
|
|
Notional Amount
|
Average Fixed Rate
|
Remaining Term at
|
||||||||||||
|
|
2016
|
2015
|
2016
|
2015
|
December 31, 2016
|
||||||||||
|
NACoal
|
$
|
80.0
|
|
$
|
100.0
|
|
1.4
|
%
|
1.4
|
%
|
extending to May 2018
|
||||
The fair value of NACoal's interest rate swap agreement was a net
payable
of
$0.3 million
at
December 31, 2016
. The mark-to-market effect of the interest rate swap agreement that is considered effective as a hedge has been included in AOCI. The interest rate swap agreement held by NACoal on
December 31, 2016
is expected to continue to be effective as a hedge.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table summarizes the fair value of derivative instruments at
December 31
as recorded in the Consolidated Balance Sheets:
|
|
Asset Derivatives
|
Liability Derivatives
|
|||||||||||||||||
|
|
Balance sheet location
|
2016
|
2015
|
Balance sheet location
|
2016
|
2015
|
|||||||||||||
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
||||||||||||||
|
Interest rate swap agreements
|
|
|
|
|
|
|
|||||||||||||
|
Current
|
Prepaid expenses and other
|
$
|
14
|
|
$
|
1
|
|
Other current liabilities
|
$
|
239
|
|
$
|
289
|
|
|||||
|
Long-term
|
Other non-current assets
|
760
|
|
2
|
|
Other long-term liabilities
|
100
|
|
409
|
|
|||||||||
|
Foreign currency exchange contracts
|
|
|
|
|
|
|
|||||||||||||
|
Current
|
Prepaid expenses and other
|
147
|
|
386
|
|
Other current liabilities
|
—
|
|
—
|
|
|||||||||
|
Total derivatives
|
|
$
|
921
|
|
$
|
389
|
|
|
$
|
339
|
|
$
|
698
|
|
|||||
The following table summarizes the pre-tax impact of derivative instruments for each year ended
December 31
as recorded in the Consolidated Statements of Operations:
|
Derivatives in Cash Flow Hedging Relationships
|
Amount of Gain or (Loss)
Recognized in AOCI on
Derivative (Effective Portion)
|
Location of Gain or
(Loss) Reclassified
from AOCI into
Income (Effective
Portion)
|
Amount of Gain or (Loss)
Reclassified from AOCI
into Income (Effective Portion)
|
Location of Gain or
(Loss) Recognized
in Income on
Derivative
(Ineffective
Portion and Amount
Excluded from
Effectiveness
Testing)
|
Amount of Gain or (Loss) Recognized
in Income on Derivative
(Ineffective Portion and Amount Excluded from
Effectiveness Testing)
|
|||||||||||||||||||||||||||||||||||
|
2016
|
2015
|
2014
|
2016
|
2015
|
2014
|
2016
|
2015
|
2014
|
||||||||||||||||||||||||||||||||
|
Interest rate swap agreements
|
$
|
(57
|
)
|
$
|
(1,922
|
)
|
$
|
(2,664
|
)
|
Interest expense
|
$
|
(1,187
|
)
|
$
|
(1,460
|
)
|
$
|
(1,495
|
)
|
N/A
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Foreign currency exchange contracts
|
(268
|
)
|
988
|
|
308
|
|
Cost of sales
|
11
|
|
860
|
|
108
|
|
N/A
|
—
|
|
—
|
|
—
|
|
||||||||||||||||||||
|
Total
|
$
|
(325
|
)
|
$
|
(934
|
)
|
$
|
(2,356
|
)
|
|
$
|
(1,176
|
)
|
$
|
(600
|
)
|
$
|
(1,387
|
)
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|||||||||||
|
|
Amount of Gain or (Loss)
Recognized in Income on Derivative
|
|||||||||||||
|
Derivatives Not Designated as Hedging Instruments
|
Location of Gain or (Loss) Recognized in Income on Derivative
|
2016
|
2015
|
2014
|
||||||||||
|
Foreign currency exchange contracts
|
Cost of sales or Other
|
$
|
—
|
|
$
|
—
|
|
$
|
25
|
|
||||
|
Total
|
|
$
|
—
|
|
$
|
—
|
|
$
|
25
|
|
||||
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 10—
Fair Value Disclosure
Recurring Fair Value Measurements
: The following table presents the Company's assets and liabilities accounted for at fair value on a recurring basis:
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
|
Quoted Prices in
|
Significant
|
|||||||||||||||
|
Active Markets for
|
Significant Other
|
Unobservable
|
||||||||||||||
|
Identical Assets
|
Observable Inputs
|
Inputs
|
||||||||||||||
|
Description
|
December 31, 2016
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Available for sale securities
|
$
|
7,882
|
|
$
|
7,882
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Interest rate swap agreements
|
774
|
|
—
|
|
774
|
|
—
|
|
||||||||
|
Foreign currency exchange contracts
|
147
|
|
—
|
|
147
|
|
—
|
|
||||||||
|
$
|
8,803
|
|
$
|
7,882
|
|
$
|
921
|
|
$
|
—
|
|
|||||
|
Liabilities:
|
||||||||||||||||
|
Interest rate swap agreements
|
$
|
339
|
|
$
|
—
|
|
$
|
339
|
|
$
|
—
|
|
||||
|
$
|
339
|
|
$
|
—
|
|
$
|
339
|
|
$
|
—
|
|
|||||
|
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||
|
Quoted Prices in
|
Significant
|
|||||||||||||||
|
Active Markets for
|
Significant Other
|
Unobservable
|
||||||||||||||
|
Identical Assets
|
Observable Inputs
|
Inputs
|
||||||||||||||
|
Description
|
December 31, 2015
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Assets:
|
||||||||||||||||
|
Available for sale securities
|
$
|
7,247
|
|
$
|
7,247
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Interest rate swap agreements
|
3
|
|
—
|
|
3
|
|
—
|
|
||||||||
|
Foreign currency exchange contracts
|
386
|
|
—
|
|
386
|
|
—
|
|
||||||||
|
$
|
7,636
|
|
$
|
7,247
|
|
$
|
389
|
|
$
|
—
|
|
|||||
|
Liabilities:
|
||||||||||||||||
|
Interest rate swap agreements
|
$
|
698
|
|
$
|
—
|
|
$
|
698
|
|
$
|
—
|
|
||||
|
$
|
698
|
|
$
|
—
|
|
$
|
698
|
|
$
|
—
|
|
|||||
Bellaire's Mine Water Treatment Trust invests in available for sale securities that are reported at fair value based upon quoted market prices in active markets for identical assets; therefore, they are classified as Level 1 within the fair value hierarchy.
See Note 7
for further discussion of Bellaire's Mine Water Treatment Trust.
The Company uses significant other observable inputs to value derivative instruments used to hedge foreign currency and interest rate risk; therefore, they are classified within Level 2 of the valuation hierarchy. The fair value for these contracts is determined based on exchange rates and interest rates, respectively.
See Note 9
for further discussion of the Company's derivative financial instruments.
There were no transfers into or out of Levels 1, 2 or 3 during the year ended
December 31, 2016
.
Nonrecurring Fair Value Measurements
:
Centennial ceased coal production in the fourth quarter of 2015 and the Company concurrently began actively marketing Centennial's mine machinery and equipment. The Company classified these assets as held for sale during the fourth quarter of 2015 when management approved and committed to a formal plan of sale. Centennial's coal land and real estate did not meet the held-for-sale criteria and remained within property, plant and equipment as a long-lived asset.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
As a result of various unfavorable conditions, including but not limited to weakness in the U.S. and global coal markets and certain asset-specific factors, the Company determined the carrying value of Centennial's coal land and real estate were not recoverable during the third quarter of 2016. The Company also conducted a review of the carrying value of Centennial's mine machinery and equipment classified as assets held for sale during the third quarter of 2016. The fair values of these assets were calculated using a combination of a market and income approach and reduced the carrying value of coal land and real estate to
zero
and assets held for sale to approximately
$5.0 million
as of September 30, 2016. The Company recognized an aggregate impairment charge of
$17.4 million
during the third quarter of 2016. The asset impairment charge was recorded as "Centennial asset impairment charge" in the Consolidated Statement of Operations during 2016 and relates exclusively to the NACoal segment.
The Company previously determined that indicators of potential impairment were present during the fourth quarter of 2014 with respect to its Centennial mining operations asset group. The Company assessed the recoverability of Centennial's assets and determined that the assets were not fully recoverable when compared to the remaining future undiscounted cash flows from these assets. As a result, the Company estimated the fair value of the asset group and the long-lived assets were written down to their estimated fair value which resulted in a non-cash asset impairment charge of
$105.1 million
during the fourth quarter of 2014. The asset impairment charge was recorded as "Centennial asset impairment charge" in the Consolidated Statement of Operations during 2014 and relates exclusively to the NACoal segment.
Other Fair Value Measurement Disclosures:
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturities of these instruments. The fair values of revolving credit agreements and long-term debt, excluding capital leases, were determined using current rates offered for similar obligations taking into account subsidiary credit risk, which is Level 2 as defined in the fair value hierarchy. At
December 31, 2016
and
December 31, 2015
, both the fair value and the book value of revolving credit agreements and long-term debt, excluding capital leases, was
$126.1 million
and
$159.8 million
, respectively.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable and derivatives. HBB maintains significant accounts receivable balances with several large retail customers. At
December 31, 2016
and
2015
, receivables from HBB's five largest customers represented
55.8%
and
56.8%
, respectively, of the Company's consolidated net accounts receivable. In addition, under its mining contracts, NACoal recognizes revenue and a related receivable as coal or limerock is delivered or predevelopment services are provided. These mining contracts provide for monthly settlements. HBB and NACoal's significant credit concentration is uncollateralized; however, historically minimal credit losses have been incurred. To further reduce credit risk associated with accounts receivable, the Company performs periodic credit evaluations of its customers, but does not generally require advance payments or collateral. The Company enters into derivative contracts with high-quality financial institutions and limits the amount of credit exposure to any one institution.
See Note 9
for further discussion of the Company's derivative financial instruments.
NOTE 11—
Leasing Arrangements
The Company leases certain office and warehouse facilities, retail stores and machinery and equipment under noncancellable capital and operating leases that expire at various dates through 2031. Many leases include renewal and/or fair value purchase options.
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Future minimum capital and operating lease payments at
December 31, 2016
are:
|
|
Capital
Leases
|
Operating
Leases
|
|||||
|
2017
|
$
|
1,732
|
|
$
|
28,930
|
|
|
|
2018
|
1,591
|
|
23,213
|
|
|||
|
2019
|
1,952
|
|
17,949
|
|
|||
|
2020
|
1,105
|
|
15,250
|
|
|||
|
2021
|
1,084
|
|
10,372
|
|
|||
|
Subsequent to 2021
|
1,806
|
|
26,275
|
|
|||
|
Total minimum lease payments
|
9,270
|
|
$
|
121,989
|
|
||
|
Amounts representing interest
|
604
|
|
|
||||
|
Present value of net minimum lease payments
|
8,666
|
|
|
||||
|
Current maturities
|
1,542
|
|
|
||||
|
Long-term capital lease obligation
|
$
|
7,124
|
|
|
|||
Rental expense for all operating leases was
$33.3 million
,
$35.8 million
and
$39.8 million
in
2016
,
2015
and
2014
, respectively. The Company also recognized
$0.7 million
,
$0.8 million
and
$0.7 million
in
2016
,
2015
and
2014
, respectively, for rental income on subleases of equipment and buildings under operating leases in which it was the lessee.
KC accrued
$1.2 million
in early lease termination penalties within "Selling, general, and administrative expenses" for the year ended December 31, 2014. These penalties arose as a result of early exit provisions in certain operating lease contracts permitting KC to exit these sites in the first half of 2015 rather than upon lease expiration in outlying years.
Assets recorded under capital leases are included in property, plant and equipment and consist of the following:
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
Plant and equipment
|
$
|
4,807
|
|
$
|
4,807
|
|
|
|
Less accumulated depreciation
|
3,129
|
|
2,529
|
|
|||
|
|
$
|
1,678
|
|
$
|
2,278
|
|
|
Depreciation of plant and equipment under capital leases is included in depreciation expense in each of the years ended
December 31, 2016
,
2015
and
2014
.
NOTE 12—
Contingencies
Various legal and regulatory proceedings and claims have been or may be asserted against NACCO and certain subsidiaries relating to the conduct of their businesses, including product liability, patent infringement, asbestos related claims, environmental and other claims. These proceedings and claims are incidental to the ordinary course of business of the Company. Management believes that it has meritorious defenses and will vigorously defend the Company in these actions. Any costs that management estimates will be paid as a result of these claims are accrued when the liability is considered probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. The Company does not accrue liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated or when the liability is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is probable or reasonably possible and which are material, the Company discloses the nature of the contingency and, in some circumstances, an estimate of the possible loss.
These matters are subject to inherent uncertainties, and unfavorable rulings could occur. If an unfavorable ruling were to occur, there exists the possibility of an adverse impact on the Company’s financial position, results of operations and cash flows of the period in which the ruling occurs, or in future periods.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Litigation
During the fourth quarter of 2016, NACoal recorded a
$3.3 million
charge related to the resolution of a legal matter. This charge is recorded on the line "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Environmental matters
HBB is investigating or remediating historical environmental contamination at some current and former sites operated by HBB or by businesses it acquired. Based on the current stage of the investigation or remediation at each known site, HBB estimates the total investigation and remediation costs and the period of assessment and remediation activity required for each site. The estimate of future investigation and remediation costs is primarily based on variables associated with site clean-up, including, but not limited to, physical characteristics of the site, the nature and extent of the contamination and applicable regulatory programs and remediation standards. No assessment can fully characterize all subsurface conditions at a site. There is no assurance that additional assessment and remediation efforts will not result in adjustments to estimated remediation costs or the time frame for remediation at these sites.
HBB's estimates of investigation and remediation costs may change if it discovers contamination at additional sites or additional contamination at known sites, if the effectiveness of its current remediation efforts change, if applicable federal or state regulations change or if HBB's estimate of the time required to remediate the sites changes. HBB's revised estimates may differ materially from original estimates.
At
December 31, 2016
and
December 31, 2015
, HBB had accrued undiscounted obligations of
$8.7 million
and
$9.1 million
, respectively, for environmental investigation and remediation activities at these sites. In addition, HBB estimates that it is reasonably possible that it may incur additional expenses in the range of
zero
to
$4.7 million
related to the environmental investigation and remediation at these sites.
During 2015 and 2014, HBB recorded
$1.5 million
and
$3.3 million
in charges, respectively, in "Selling, general and administrative expenses" in the Consolidated Statement of Operations for environmental investigation and remediation at HBB's Picton, Ontario facility as a result of environmental studies.
NOTE 13—
Stockholders' Equity and Earnings Per Share
NACCO Industries, Inc. Class A common stock is traded on the New York Stock Exchange under the ticker symbol “NC.” Because of transfer restrictions on Class B common stock, no trading market has developed, or is expected to develop, for the Company's Class B common stock. The Class B common stock is convertible into Class A common stock on a one-for-one basis at any time at the request of the holder. The Company's Class A common stock and Class B common stock have the same cash dividend rights per share. As the liquidation and dividend rights are identical, any distribution of earnings would be allocated to Class A and Class B stockholders on a proportionate basis, and accordingly the net income per share for each class of common stock is identical. The Class A common stock has
one
vote per share and the Class B common stock has
ten
votes per share. The total number of authorized shares of Class A common stock and Class B common stock at
December 31, 2016
was
25,000,000
shares and
6,756,176
shares, respectively. Treasury shares of Class A common stock totaling
3,007,334
and
2,950,796
at
December 31, 2016
and
2015
, respectively, have been deducted from shares outstanding.
Stock Repurchase Programs:
On May 10, 2016, the Company's Board of Directors approved a stock repurchase program (the "2016 Stock Repurchase Program"), which provides for the purchase of up to
$50 million
of the Company's Class A Common Stock outstanding through December 31, 2017. The timing and amount of any repurchases under the 2016 Stock Repurchase Program are determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives and market conditions for the Company's Class A Common Stock. The 2016 Stock Repurchase Program does not require the Company to acquire any specific number of shares. It may be modified, suspended, extended or terminated by the Company at any time without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise. All or part of the repurchases under the 2016 Stock Repurchase Program may be implemented under a Rule 10b5-1 trading plan, which would allow repurchases under pre-set terms at times when the Company might otherwise be prevented from doing so. During 2016, the Company repurchased
109,261
shares of Class A Common Stock for an aggregate purchase price of
$6.0 million
at a weighted average
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
purchase price of
$55.32
per share. The Company’s previous
$60 million
stock repurchase program, under which the Company purchased a total of
1,122,866
shares of Class A Common Stock, was completed in October 2015.
Stock Options
: The 1975 and 1981 stock option plans, as amended, provide for the granting to officers and other key employees of options to purchase Class A common stock and Class B common stock of the Company at a price not less than the market value of such stock at the date of grant. Options become exercisable over a
four
-year period and expire
ten
years from the date of the grant. During the three-year period ending
December 31, 2016
, there were
80,701
shares of Class A common stock and
80,100
shares of Class B common stock available for grant. However,
no
options were granted during the three-year period ended
December 31, 2016
and
no
options remain outstanding at the end of either of the years ended
December 31, 2016
or
2015
. At present, the Company does not intend to issue additional stock options.
Stock Compensation:
See Note 2
for a discussion of the Company's restricted stock awards.
Amounts Reclassified out of Accumulated Other Comprehensive Income:
The following table summarizes the amounts reclassified out of AOCI and recognized in the Consolidated Statement of Operations:
|
Amount reclassified from AOCI
|
|||||||||||||
|
Details about AOCI components
|
2016
|
2015
|
2014
|
Location of loss (gain) reclassified from AOCI into income
|
|||||||||
|
(In thousands)
|
|||||||||||||
|
Loss (gain) on cash flow hedging
|
|||||||||||||
|
Foreign exchange contracts
|
$
|
(11
|
)
|
$
|
(860
|
)
|
$
|
(108
|
)
|
Cost of sales
|
|||
|
Interest rate contracts
|
1,187
|
|
1,460
|
|
1,495
|
|
Interest expense
|
||||||
|
1,176
|
|
600
|
|
1,387
|
|
Total before income tax expense
|
|||||||
|
Tax effect
|
(419
|
)
|
(191
|
)
|
(489
|
)
|
Income tax benefit
|
||||||
|
$
|
757
|
|
$
|
409
|
|
$
|
898
|
|
Net of tax
|
||||
|
Pension and postretirement plan
|
|||||||||||||
|
Actuarial loss
|
$
|
1,145
|
|
$
|
1,333
|
|
$
|
1,015
|
|
(a)
|
|||
|
Prior-service credit
|
(49
|
)
|
(57
|
)
|
(75
|
)
|
(a)
|
||||||
|
1,096
|
|
1,276
|
|
940
|
|
Total before income tax expense
|
|||||||
|
Tax effect
|
(408
|
)
|
(420
|
)
|
(313
|
)
|
Income tax benefit
|
||||||
|
$
|
688
|
|
$
|
856
|
|
$
|
627
|
|
Net of tax
|
||||
|
Total reclassifications for the period
|
$
|
1,445
|
|
$
|
1,265
|
|
$
|
1,525
|
|
Net of tax
|
|||
(a) These AOCI components are included in the computation of pension and postretirement expense.
See Note 15
for a discussion of the Company's pension and postretirement expense.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Earnings per Share:
The weighted average number of shares of Class A common stock and Class B common stock outstanding used to calculate basic and diluted earnings per share were as follows:
|
|
2016
|
2015
|
2014
|
||||||||
|
Basic weighted average shares outstanding
|
6,818
|
|
7,001
|
|
7,590
|
|
|||||
|
Dilutive effect of restricted stock awards
|
36
|
|
21
|
|
N/A
|
|
|||||
|
Diluted weighted average shares outstanding
|
6,854
|
|
7,022
|
|
7,590
|
|
|||||
|
Basic earnings (loss) per share
|
$
|
4.34
|
|
$
|
3.14
|
|
$
|
(5.02
|
)
|
||
|
Diluted earnings (loss) per share
|
$
|
4.32
|
|
$
|
3.13
|
|
$
|
(5.02
|
)
|
||
NOTE 14—
Income Taxes
The components of income (loss) from continuing operations before income tax provision (benefit) and the income tax provision (benefit) for the years ended
December 31
are as follows:
|
|
2016
|
2015
|
2014
|
||||||||
|
Income (loss) before income tax provision (benefit)
|
|
|
|
||||||||
|
Domestic
|
$
|
34,885
|
|
$
|
26,383
|
|
$
|
(74,402
|
)
|
||
|
Foreign
|
(415
|
)
|
(1,584
|
)
|
(2,171
|
)
|
|||||
|
|
$
|
34,470
|
|
$
|
24,799
|
|
$
|
(76,573
|
)
|
||
|
Income tax provision (benefit)
|
|
|
|
||||||||
|
Current income tax provision (benefit):
|
|
|
|
||||||||
|
Federal
|
$
|
(9,200
|
)
|
$
|
6,427
|
|
$
|
2,778
|
|
||
|
State
|
782
|
|
2,185
|
|
(472
|
)
|
|||||
|
Foreign
|
584
|
|
1,145
|
|
586
|
|
|||||
|
Total current
|
(7,834
|
)
|
9,757
|
|
2,892
|
|
|||||
|
Deferred income tax provision (benefit):
|
|
|
|
||||||||
|
Federal
|
12,393
|
|
(7,472
|
)
|
(38,829
|
)
|
|||||
|
State
|
214
|
|
925
|
|
(1,817
|
)
|
|||||
|
Foreign
|
90
|
|
(395
|
)
|
(701
|
)
|
|||||
|
Total deferred
|
12,697
|
|
(6,942
|
)
|
(41,347
|
)
|
|||||
|
|
$
|
4,863
|
|
$
|
2,815
|
|
$
|
(38,455
|
)
|
||
The Company made income tax payments of
$3.2 million
,
$10.9 million
and
$10.2 million
during
2016
,
2015
and
2014
, respectively. During the same periods, income tax refunds totaled
$3.0 million
,
$0.2 million
and
$0.9 million
, respectively.
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
A reconciliation of the federal statutory and effective income tax rate for the years ended
December 31
is as follows:
|
|
2016
|
2015
|
2014
|
||||||||
|
Income (loss) before income tax provision (benefit)
|
$
|
34,470
|
|
$
|
24,799
|
|
$
|
(76,573
|
)
|
||
|
Statutory taxes (benefit) at 35.0%
|
$
|
12,064
|
|
$
|
8,679
|
|
$
|
(26,801
|
)
|
||
|
State and local income taxes
|
(908
|
)
|
(439
|
)
|
(7,112
|
)
|
|||||
|
Valuation allowances
|
2,602
|
|
3,525
|
|
5,742
|
|
|||||
|
Non-deductible expenses
|
966
|
|
787
|
|
632
|
|
|||||
|
Percentage depletion
|
(6,374
|
)
|
(8,406
|
)
|
(8,572
|
)
|
|||||
|
R&D and other federal credits
|
67
|
|
(1,854
|
)
|
(1,397
|
)
|
|||||
|
Other, net
|
(183
|
)
|
(332
|
)
|
322
|
|
|||||
|
Tax settlements
|
(3,371
|
)
|
855
|
|
(1,269
|
)
|
|||||
|
Income tax provision
|
$
|
4,863
|
|
$
|
2,815
|
|
$
|
(38,455
|
)
|
||
|
Effective income tax rate
|
14.1
|
%
|
11.4
|
%
|
50.2
|
%
|
|||||
As of
December 31, 2016
, the cumulative unremitted earnings of the Company's foreign subsidiaries are approximately
$9.2 million
. The Company has provided a cumulative deferred tax liability in the amount of
$0.3 million
with respect to the cumulative unremitted earnings of the Company as of
December 31, 2016
which are expected to be repatriated. The Company has continued to conclude all remaining foreign earnings in excess of this amount will be indefinitely reinvested in its foreign operations and, therefore, the recording of deferred tax liabilities for such unremitted earnings is not required. It is impracticable to determine the amount of unrecognized deferred taxes with respect to these permanently reinvested earnings; however, foreign tax credits would be available to reduce, in part, U.S. income taxes in the event of a distribution.
A detailed summary of the total deferred tax assets and liabilities in the Company's Consolidated Balance Sheets resulting from differences in the book and tax basis of assets and liabilities follows:
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
Deferred tax assets
|
|
|
|||||
|
Tax carryforwards
|
$
|
24,138
|
|
$
|
12,812
|
|
|
|
Inventories
|
3,810
|
|
4,680
|
|
|||
|
Accrued expenses and reserves
|
27,777
|
|
30,640
|
|
|||
|
Other employee benefits
|
10,451
|
|
14,253
|
|
|||
|
Partnership investment - development costs
|
3,818
|
|
21,766
|
|
|||
|
Other
|
16,091
|
|
16,170
|
|
|||
|
Total deferred tax assets
|
86,085
|
|
100,321
|
|
|||
|
Less: Valuation allowance
|
14,495
|
|
11,723
|
|
|||
|
|
71,590
|
|
88,598
|
|
|||
|
Deferred tax liabilities
|
|
|
|||||
|
Depreciation and depletion
|
41,055
|
|
42,679
|
|
|||
|
Accrued pension benefits
|
1,813
|
|
3,610
|
|
|||
|
Unremitted foreign earnings
|
342
|
|
296
|
|
|||
|
Total deferred tax liabilities
|
43,210
|
|
46,585
|
|
|||
|
Net deferred asset
|
$
|
28,380
|
|
$
|
42,013
|
|
|
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table summarizes the tax carryforwards and associated carryforward periods and related valuation allowances where the Company has determined that realization is uncertain:
|
|
December 31, 2016
|
||||||||
|
|
Net deferred tax
asset
|
Valuation
allowance
|
Carryforwards
expire during:
|
||||||
|
Non-U.S. net operating loss
|
$
|
2,109
|
|
$
|
2,109
|
|
2021 - Indefinite
|
||
|
State losses
|
16,351
|
|
13,350
|
|
2016 - 2035
|
||||
|
Research credit
|
3,301
|
|
—
|
|
2028 - 2030
|
||||
|
Alternative minimum tax credit
|
8,035
|
|
—
|
|
Indefinite
|
||||
|
Total
|
$
|
29,796
|
|
$
|
15,459
|
|
|||
|
|
December 31, 2015
|
||||||||
|
|
Net deferred tax
asset
|
Valuation
allowance
|
Carryforwards
expire during:
|
||||||
|
Non-U.S. net operating loss
|
$
|
915
|
|
$
|
915
|
|
2020 - Indefinite
|
||
|
State losses
|
11,098
|
|
7,605
|
|
2015 - 2034
|
||||
|
Research credit
|
2,807
|
|
—
|
|
2027 - 2029
|
||||
|
Alternative minimum tax credit
|
1,871
|
|
—
|
|
Indefinite
|
||||
|
Total
|
$
|
16,691
|
|
$
|
8,520
|
|
|||
The Company evaluates its deferred tax assets to determine if a valuation allowance is required based on the consideration of all available evidence, both positive and negative, using a “more likely than not” standard. A valuation allowance is required where realization is determined to no longer meet the “more likely than not” standard. The establishment of a valuation allowance does not have an impact on cash, nor does such an allowance preclude the Company from using its loss carryforwards or other deferred tax assets in future periods. A significant element of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2016. The positive evidence considered by management included a strong earnings history (exclusive of the losses at Centennial, and more specifically the 2014 and 2016 impairment charges, that gave rise to the deferred tax asset) plus evidence indicating that the loss is an isolated one rather than a continuing condition and the Company’s future income-generating capacity and tax-planning strategies. Projected future taxable income and tax-planning strategies were given the appropriate weighting in the analysis and support the conclusion that such positive evidence was sufficient to overcome the weight of negative evidence related to a three-year cumulative loss. Management concluded that it is more likely than not that all of the U.S. Federal net deferred tax asset will be realized based upon projected future taxable income.
The Company has a valuation allowance for certain state and foreign deferred tax assets. Based upon the review of historical earnings and the relevant expiration of carryforwards, including utilization limitations in the various state taxing jurisdictions, the Company believes the valuation allowances are appropriate and does not expect to release valuation allowances within the next twelve months that would have a significant effect on the Company's financial position or results of operations.
The tax returns of the Company and certain of its subsidiaries are under routine examination by various taxing authorities. The Company has not been informed of any material assessment for which an accrual has not been previously provided and the Company would vigorously contest any material assessment. Management believes any potential adjustment would not materially affect the Company's financial condition or results of operations.
The following is a reconciliation of the Company's total gross unrecognized tax benefits, defined as the aggregate tax effect of differences between tax return positions and the benefits recognized in the financial statements for the years ended
December 31, 2016
and
2015
. Approximately
$1.2 million
and
$3.9 million
of these gross amounts as of
December 31, 2016
and
2015
, respectively, relate to permanent items that, if recognized, would impact the effective income tax rate. This amount differs from the gross unrecognized tax benefits presented in the table below due to the decrease in U.S. federal income taxes
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
which would occur upon the recognition of the state tax benefits included herein.
|
|
2016
|
2015
|
2014
|
||||||||
|
Balance at January 1
|
$
|
4,870
|
|
$
|
3,466
|
|
$
|
7,848
|
|
||
|
Additions based on tax positions related to prior years
|
348
|
|
1,230
|
|
453
|
|
|||||
|
Additions based on tax positions related to the current year
|
377
|
|
531
|
|
921
|
|
|||||
|
Reductions due to settlements with taxing authorities
|
(2,190
|
)
|
(256
|
)
|
(4,701
|
)
|
|||||
|
Reductions due to lapse of the applicable statute of limitations
|
(1,818
|
)
|
(101
|
)
|
(1,055
|
)
|
|||||
|
Balance at December 31
|
$
|
1,587
|
|
$
|
4,870
|
|
$
|
3,466
|
|
||
The Company records interest and penalties on uncertain tax positions as a component of the income tax provision. The Company recognized net (benefit)/expense of
$(0.7) million
,
$0.2 million
and
$(0.9) million
in interest and penalties related to uncertain tax positions during
2016
,
2015
and 2014, respectively. The total amount of interest and penalties accrued was
$0.1 million
and
$0.7 million
as of
December 31, 2016
and
2015
, respectively.
The Company expects the amount of unrecognized tax benefits will change within the next 12 months; however, the change in unrecognized tax benefits, which is reasonably possible within the next 12 months, is not expected to have a significant effect on the Company's financial position, results of operations or cash flows.
In general, the Company operates in taxing jurisdictions that provide a statute of limitations period ranging from three to five years for the taxing authorities to review the applicable tax filings. The examination of the 2011 and 2012 U.S. federal tax returns concluded in the second quarter of 2014. The Company does not have any additional material taxing jurisdictions in which the statute of limitations has been extended beyond the applicable time frame allowed by law.
NOTE 15—
Retirement Benefit Plans
Defined Benefit Plans:
The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Prior to
2014
, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees, including those for certain Unconsolidated Mines' employees. The Company also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all pension benefits. Certain executive officers also maintain accounts under various deferred compensation plans that were frozen prior to
2014
.
All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.
The assumptions used in accounting for the defined benefit plans were as follows for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
|||||
|
U.S. Plans
|
|
|
|
|||||
|
Weighted average discount rates for pension benefit obligation
|
3.60% - 4.00%
|
|
3.70% - 4.20%
|
|
3.45% - 3.95%
|
|
||
|
Weighted average discount rates for net periodic benefit cost
|
3.70% - 4.20%
|
|
3.45% - 3.95%
|
|
4.00% - 4.75%
|
|
||
|
Expected long-term rate of return on assets for net periodic benefit cost
|
7.50
|
%
|
7.75
|
%
|
7.75
|
%
|
||
|
Non-U.S. Plan
|
||||||||
|
Weighted average discount rates for pension benefit obligation
|
3.75
|
%
|
4.00
|
%
|
3.75
|
%
|
||
|
Weighted average discount rates for net periodic benefit cost
|
4.00
|
%
|
3.75
|
%
|
4.50
|
%
|
||
|
Rate of increase in compensation levels
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
||
|
Expected long-term rate of return on assets for net periodic benefit cost
|
5.50
|
%
|
5.75
|
%
|
6.00
|
%
|
||
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
U.S. Plans
|
|||||||||||
|
Interest cost
|
$
|
2,632
|
|
$
|
2,627
|
|
$
|
2,754
|
|
||
|
Expected return on plan assets
|
(4,860
|
)
|
(4,892
|
)
|
(4,689
|
)
|
|||||
|
Amortization of actuarial loss
|
910
|
|
1,059
|
|
837
|
|
|||||
|
Amortization of prior service cost
|
58
|
|
50
|
|
32
|
|
|||||
|
Settlements
|
90
|
|
—
|
|
—
|
|
|||||
|
Net periodic pension income
|
$
|
(1,170
|
)
|
$
|
(1,156
|
)
|
$
|
(1,066
|
)
|
||
|
|
|
|
|||||||||
|
Non-U.S. Plan
|
|||||||||||
|
Interest cost
|
$
|
144
|
|
$
|
152
|
|
$
|
196
|
|
||
|
Expected return on plan assets
|
(248
|
)
|
(272
|
)
|
(296
|
)
|
|||||
|
Amortization of actuarial loss
|
13
|
|
146
|
|
112
|
|
|||||
|
Settlements
|
—
|
|
37
|
|
—
|
|
|||||
|
Net periodic pension (income) expense
|
$
|
(91
|
)
|
$
|
63
|
|
$
|
12
|
|
||
Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
U.S. Plans
|
|
|
|
||||||||
|
Current year actuarial loss
|
$
|
2,816
|
|
$
|
2,181
|
|
$
|
8,896
|
|
||
|
Amortization of actuarial loss
|
(910
|
)
|
(1,059
|
)
|
(837
|
)
|
|||||
|
Current year prior service cost
|
—
|
|
147
|
|
360
|
|
|||||
|
Amortization of prior service cost
|
(58
|
)
|
(50
|
)
|
(32
|
)
|
|||||
|
Settlements
|
(90
|
)
|
—
|
|
—
|
|
|||||
|
Total recognized in other comprehensive loss
|
$
|
1,758
|
|
$
|
1,219
|
|
$
|
8,387
|
|
||
|
Non-U.S. Plan
|
|
||||||||||
|
Current year actuarial loss (gain)
|
$
|
318
|
|
$
|
(128
|
)
|
$
|
(94
|
)
|
||
|
Amortization of actuarial loss
|
(13
|
)
|
(146
|
)
|
(112
|
)
|
|||||
|
Settlements
|
—
|
|
(37
|
)
|
—
|
|
|||||
|
Total recognized in other comprehensive loss (income)
|
$
|
305
|
|
$
|
(311
|
)
|
$
|
(206
|
)
|
||
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at
December 31
:
|
|
2016
|
2015
|
|||||||||||||
|
|
U.S.
Plans
|
Non-U.S.
Plan
|
U.S. Plans
|
Non-U.S.
Plan
|
|||||||||||
|
Change in benefit obligation
|
|
|
|
|
|||||||||||
|
Projected benefit obligation at beginning of year
|
$
|
68,490
|
|
$
|
3,519
|
|
$
|
72,839
|
|
$
|
4,549
|
|
|||
|
Interest cost
|
2,632
|
|
144
|
|
2,627
|
|
152
|
|
|||||||
|
Actuarial loss (gain)
|
2,145
|
|
430
|
|
(2,884
|
)
|
(146
|
)
|
|||||||
|
Benefits paid
|
(3,978
|
)
|
(176
|
)
|
(4,393
|
)
|
(146
|
)
|
|||||||
|
Foreign currency exchange rate changes
|
—
|
|
104
|
|
—
|
|
(712
|
)
|
|||||||
|
Settlements
|
(18
|
)
|
—
|
|
—
|
|
(178
|
)
|
|||||||
|
Intercompany transfers
|
(303
|
)
|
—
|
|
301
|
|
—
|
|
|||||||
|
Projected benefit obligation at end of year
|
$
|
68,968
|
|
$
|
4,021
|
|
$
|
68,490
|
|
$
|
3,519
|
|
|||
|
Accumulated benefit obligation at end of year
|
$
|
68,968
|
|
$
|
4,021
|
|
$
|
68,490
|
|
$
|
3,519
|
|
|||
|
Change in plan assets
|
|
|
|
|
|||||||||||
|
Fair value of plan assets at beginning of year
|
$
|
64,893
|
|
$
|
4,383
|
|
$
|
68,675
|
|
$
|
5,286
|
|
|||
|
Actual return on plan assets
|
682
|
|
356
|
|
110
|
|
256
|
|
|||||||
|
Employer contributions
|
755
|
|
17
|
|
424
|
|
17
|
|
|||||||
|
Benefits paid
|
(3,978
|
)
|
(176
|
)
|
(4,393
|
)
|
(146
|
)
|
|||||||
|
Foreign currency exchange rate changes
|
—
|
|
132
|
|
—
|
|
(852
|
)
|
|||||||
|
Settlements
|
(18
|
)
|
—
|
|
—
|
|
(178
|
)
|
|||||||
|
Intercompany transfers
|
(304
|
)
|
—
|
|
77
|
|
—
|
|
|||||||
|
Fair value of plan assets at end of year
|
$
|
62,030
|
|
$
|
4,712
|
|
$
|
64,893
|
|
$
|
4,383
|
|
|||
|
Funded status at end of year
|
$
|
(6,938
|
)
|
$
|
691
|
|
$
|
(3,597
|
)
|
$
|
864
|
|
|||
|
Amounts recognized in the balance sheets consist of:
|
|
|
|
|
|||||||||||
|
Noncurrent assets
|
$
|
5,140
|
|
$
|
691
|
|
$
|
4,261
|
|
$
|
864
|
|
|||
|
Current liabilities
|
(721
|
)
|
—
|
|
(1,016
|
)
|
—
|
|
|||||||
|
Non-current liabilities
|
(11,357
|
)
|
—
|
|
(6,842
|
)
|
—
|
|
|||||||
|
|
$
|
(6,938
|
)
|
$
|
691
|
|
$
|
(3,597
|
)
|
$
|
864
|
|
|||
|
Components of accumulated other comprehensive loss (income) consist of:
|
|
|
|||||||||||||
|
Actuarial loss
|
$
|
29,857
|
|
$
|
1,029
|
|
$
|
28,041
|
|
$
|
737
|
|
|||
|
Prior service cost
|
996
|
|
—
|
|
1,054
|
|
—
|
|
|||||||
|
Deferred taxes
|
(11,957
|
)
|
(327
|
)
|
(11,324
|
)
|
(250
|
)
|
|||||||
|
Currency differences
|
—
|
|
(89
|
)
|
—
|
|
(102
|
)
|
|||||||
|
|
$
|
18,896
|
|
$
|
613
|
|
$
|
17,771
|
|
$
|
385
|
|
|||
The actuarial loss and prior service cost included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in
2017
are
$0.9 million
(
$0.6 million
net of tax) and less than
$0.1 million
, respectively.
The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in AOCI.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations. The Company expects to contribute less than
$0.1 million
to its non-U.S. pension plans in
2017
.
The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds. All other pension benefit payments are made from assets of the pension plans.
Future pension benefit payments expected to be paid from assets of the pension plans are:
|
|
U.S. Plans
|
Non-U.S. Plan
|
|||||
|
2017
|
$
|
4,761
|
|
$
|
172
|
|
|
|
2018
|
4,564
|
|
170
|
|
|||
|
2019
|
4,552
|
|
177
|
|
|||
|
2020
|
4,806
|
|
187
|
|
|||
|
2021
|
4,694
|
|
199
|
|
|||
|
2022 - 2026
|
22,831
|
|
1,187
|
|
|||
|
|
$
|
46,208
|
|
$
|
2,092
|
|
|
The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.
Expected returns for U.S. pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for Non-U.S. pension plans are based on fair market value for Non-U.S. pension plan assets.
The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.
The following is the actual allocation percentage and target allocation percentage for the U.S. pension plan assets at December 31:
|
|
2016
Actual Allocation |
2015
Actual Allocation |
Target Allocation
Range
|
||||
|
U.S. equity securities
|
45.8
|
%
|
52.1
|
%
|
36.0% - 54.0%
|
||
|
Non-U.S. equity securities
|
19.7
|
%
|
12.3
|
%
|
16.0% - 24.0%
|
||
|
Fixed income securities
|
33.7
|
%
|
35.1
|
%
|
30.0% - 40.0%
|
||
|
Money market
|
0.8
|
%
|
0.5
|
%
|
0.0% - 10.0%
|
||
The following is the actual allocation percentage and target allocation percentage for the Non-U.S. pension plan assets at December 31:
|
|
2016
Actual Allocation |
2015
Actual Allocation |
Target Allocation
Range
|
||||
|
Canadian equity securities
|
32.7
|
%
|
28.9
|
%
|
25.0% - 35.0%
|
||
|
Non-Canadian equity securities
|
32.1
|
%
|
30.6
|
%
|
25.0% - 35.0%
|
||
|
Fixed income securities
|
35.2
|
%
|
40.5
|
%
|
30.0% - 50.0%
|
||
|
Cash and cash equivalents
|
—
|
%
|
—
|
%
|
0.0% - 5.0%
|
||
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
The defined benefit pension plans do not have any direct ownership of NACCO common stock.
The fair value of each major category of the Company's U.S. pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. The fair value of each major category of the Company's Non-U.S. pension plan assets are valued using observable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets, or Level 2 in the fair value hierarchy. Following are the values as of
December 31
:
|
Level 1
|
Level 2
|
||||||||||||||
|
|
2016
|
2015
|
2016
|
2015
|
|||||||||||
|
U.S. equity securities
|
$
|
28,428
|
|
$
|
33,799
|
|
$
|
777
|
|
$
|
670
|
|
|||
|
Non-U.S. equity securities
|
12,197
|
|
8,003
|
|
2,275
|
|
1,939
|
|
|||||||
|
Fixed income securities
|
20,930
|
|
22,787
|
|
1,660
|
|
1,774
|
|
|||||||
|
Money market
|
475
|
|
304
|
|
—
|
|
—
|
|
|||||||
|
Total
|
$
|
62,030
|
|
$
|
64,893
|
|
$
|
4,712
|
|
$
|
4,383
|
|
|||
Postretirement Health Care:
The Company also maintains health care plans which provide benefits to grandfathered eligible retired employees in the U.S. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.
The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
|||||
|
Weighted average discount rates for benefit obligation
|
3.40
|
%
|
3.40
|
%
|
3.25
|
%
|
||
|
Weighted average discount rates for net periodic benefit cost
|
3.25
|
%
|
3.25
|
%
|
3.85
|
%
|
||
|
Health care cost trend rate assumed for next year
|
7.3
|
%
|
7.3
|
%
|
7.0
|
%
|
||
|
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)
|
5.0
|
%
|
5.0
|
%
|
5.0
|
%
|
||
|
Year that the rate reaches the ultimate trend rate
|
2025
|
|
2025
|
|
2022
|
|
||
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects at
December 31, 2016
:
|
|
1-Percentage-Point
Increase
|
1-Percentage-Point
Decrease
|
|||||
|
Effect on total of service and interest cost
|
$
|
16
|
|
$
|
(14
|
)
|
|
|
Effect on postretirement benefit obligation
|
$
|
223
|
|
$
|
(208
|
)
|
|
Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Service cost
|
$
|
70
|
|
$
|
70
|
|
$
|
70
|
|
||
|
Interest cost
|
116
|
|
113
|
|
118
|
|
|||||
|
Amortization of actuarial loss
|
132
|
|
91
|
|
66
|
|
|||||
|
Amortization of prior service credit
|
(107
|
)
|
(107
|
)
|
(107
|
)
|
|||||
|
Net periodic benefit expense
|
$
|
211
|
|
$
|
167
|
|
$
|
147
|
|
||
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended
December 31
:
|
|
2016
|
2015
|
2014
|
||||||||
|
Current year actuarial (gain) loss
|
$
|
(25
|
)
|
$
|
226
|
|
$
|
613
|
|
||
|
Amortization of actuarial loss
|
(132
|
)
|
(91
|
)
|
(66
|
)
|
|||||
|
Amortization of prior service credit
|
107
|
|
107
|
|
107
|
|
|||||
|
Total recognized in other comprehensive income
|
$
|
(50
|
)
|
$
|
242
|
|
$
|
654
|
|
||
The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at
December 31
:
|
|
2016
|
2015
|
|||||
|
Change in benefit obligation
|
|
|
|||||
|
Benefit obligation at beginning of year
|
$
|
3,466
|
|
$
|
3,534
|
|
|
|
Service cost
|
70
|
|
70
|
|
|||
|
Interest cost
|
116
|
|
113
|
|
|||
|
Actuarial loss
|
(25
|
)
|
226
|
|
|||
|
Benefits paid
|
(416
|
)
|
(477
|
)
|
|||
|
Benefit obligation at end of year
|
$
|
3,211
|
|
$
|
3,466
|
|
|
|
Funded status at end of year
|
$
|
(3,211
|
)
|
$
|
(3,466
|
)
|
|
|
Amounts recognized in the balance sheets consist of:
|
|
|
|||||
|
Current liabilities
|
$
|
(294
|
)
|
$
|
(262
|
)
|
|
|
Noncurrent liabilities
|
(2,917
|
)
|
(3,204
|
)
|
|||
|
|
$
|
(3,211
|
)
|
$
|
(3,466
|
)
|
|
|
Components of accumulated other comprehensive loss (income) consist of:
|
|
|
|||||
|
Actuarial loss
|
$
|
983
|
|
$
|
1,140
|
|
|
|
Prior service credit
|
(95
|
)
|
(202
|
)
|
|||
|
Deferred taxes
|
284
|
|
263
|
|
|||
|
|
$
|
1,172
|
|
$
|
1,201
|
|
|
The actuarial loss and prior service credit included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in
2017
is
$0.1 million
(less than
$0.1 million
net of tax) and less than
$0.1 million
, respectively.
Future postretirement health care benefit payments expected to be paid are:
|
2017
|
$
|
294
|
|
|
2018
|
306
|
|
|
|
2019
|
317
|
|
|
|
2020
|
370
|
|
|
|
2021
|
354
|
|
|
|
2022 - 2026
|
1,358
|
|
|
|
|
$
|
2,999
|
|
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Defined Contribution Plans:
NACCO and its subsidiaries maintain defined contribution (401(k)) plans for substantially all U.S. employees and similar plans for employees outside of the United States. All companies provide employer matching (or safe harbor) contributions based on plan provisions. The defined contribution retirement plans also provide for an additional minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company's contribution to participants is determined annually based on a formula that includes the effect of actual compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were
$10.0 million
,
$6.5 million
and
$7.6 million
in
2016
,
2015
and
2014
, respectively.
NOTE 16—
Business Segments
NACCO is an operating holding company with the following reportable segments: NACoal, HBB and KC.
See Note 1
for a discussion of the Company's industries and product lines. NACCO's non-operating segment, NACCO and Other, includes the accounts of the parent company and Bellaire.
Financial information for each of NACCO's reportable segments is presented in the following table. The accounting policies of the reportable segments are described
in Note 2
. The line “Eliminations” in the revenues section eliminates revenues from HBB sales to KC. The amounts of these revenues are based on current market prices of similar third-party transactions. No other sales transactions occur among reportable segments.
The majority of NACoal's revenues are generated from its consolidated mining operations and value-added mining services. MLMC's customer, KMRC RH, LLC until April 30, 2016 and Choctaw Generation Limited Partnership, LLLP subsequent to April 30, 2016, accounted for approximately
69%
,
57%
and
39%
of NACoal's revenues for the years ended
December 31, 2016
,
2015
and
2014
, respectively. NAM's largest customer, Cemex, accounted for approximately
16%
of NACoal's revenues for the year ended
December 31, 2016
. Centennial's largest customer was the Alabama Coal Cooperative and accounted for approximately
16%
and
27%
of NACoal's revenues for the years ended December 31,
2015
and
2014
, respectively. Wal-Mart accounted for approximately
32%
,
32%
and
33%
of HBB’s revenues in
2016
,
2015
and
2014
, respectively. Amazon accounted for approximately
10%
of HBB's revenues in
2016
. HBB’s five largest customers accounted for approximately
54%
,
52%
and
56%
of HBB’s revenues for the years ended
December 31, 2016
,
2015
and
2014
, respectively. The loss of or significant reduction in sales to any key customer could result in significant decreases in NACoal's and HBB’s revenue and profitability and an inability to sustain or grow its business.
The management fees charged to operating subsidiaries represent an allocation of corporate overhead of the parent company. Management fees are allocated among all subsidiaries based upon the relative size and complexity of each subsidiary. The Company believes the allocation method is consistently applied and reasonable. Management fees included in the Selling, general and administrative expenses of the subsidiaries were
$11.5 million
,
$9.3 million
and
$8.5 million
for
2016
,
2015
and
2014
, respectively.
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
|
|
2016
|
2015
|
2014
|
||||||||
|
Revenues from external customers
|
|
|
|
||||||||
|
NACoal
|
$
|
111,081
|
|
$
|
147,998
|
|
$
|
172,702
|
|
||
|
HBB
|
605,170
|
|
620,977
|
|
559,683
|
|
|||||
|
KC
|
144,351
|
|
150,988
|
|
168,545
|
|
|||||
|
Eliminations
|
(4,164
|
)
|
(4,103
|
)
|
(4,148
|
)
|
|||||
|
Total
|
$
|
856,438
|
|
$
|
915,860
|
|
$
|
896,782
|
|
||
|
Gross profit (loss)
|
|
|
|
||||||||
|
NACoal
|
$
|
12,341
|
|
$
|
(10,816
|
)
|
$
|
(3,139
|
)
|
||
|
HBB
|
128,414
|
|
123,139
|
|
117,570
|
|
|||||
|
KC
|
65,391
|
|
67,000
|
|
71,621
|
|
|||||
|
NACCO and Other
|
(259
|
)
|
(416
|
)
|
(461
|
)
|
|||||
|
Eliminations
|
(34
|
)
|
589
|
|
(519
|
)
|
|||||
|
Total
|
$
|
205,853
|
|
$
|
179,496
|
|
$
|
185,072
|
|
||
|
Selling, general and administrative expenses, including Amortization of intangible assets
|
|
|
|
||||||||
|
NACoal
|
$
|
44,347
|
|
$
|
38,867
|
|
$
|
36,147
|
|
||
|
HBB
|
85,406
|
|
88,336
|
|
81,798
|
|
|||||
|
KC
|
65,014
|
|
66,864
|
|
79,056
|
|
|||||
|
NACCO and Other
|
7,020
|
|
3,845
|
|
4,996
|
|
|||||
|
Total
|
$
|
201,787
|
|
$
|
197,912
|
|
$
|
201,997
|
|
||
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
|
|
2016
|
2015
|
2014
|
||||||||
|
Operating profit (loss)
|
|
|
|
||||||||
|
NACoal
|
$
|
5,619
|
|
$
|
521
|
|
$
|
(89,030
|
)
|
||
|
HBB
|
43,033
|
|
34,801
|
|
35,772
|
|
|||||
|
KC
|
376
|
|
165
|
|
(7,075
|
)
|
|||||
|
NACCO and Other
|
(7,278
|
)
|
(4,248
|
)
|
(5,456
|
)
|
|||||
|
Eliminations
|
(35
|
)
|
588
|
|
(520
|
)
|
|||||
|
Total
|
$
|
41,715
|
|
$
|
31,827
|
|
$
|
(66,309
|
)
|
||
|
Interest expense
|
|
|
|
||||||||
|
NACoal
|
$
|
4,317
|
|
$
|
4,961
|
|
$
|
6,034
|
|
||
|
HBB
|
1,165
|
|
1,831
|
|
1,137
|
|
|||||
|
KC
|
209
|
|
131
|
|
367
|
|
|||||
|
NACCO and Other
|
1
|
|
1
|
|
28
|
|
|||||
|
Total
|
$
|
5,692
|
|
$
|
6,924
|
|
$
|
7,566
|
|
||
|
Interest income
|
|
|
|
||||||||
|
NACoal
|
$
|
(177
|
)
|
$
|
(416
|
)
|
$
|
(823
|
)
|
||
|
HBB
|
—
|
|
(56
|
)
|
(4
|
)
|
|||||
|
NACCO and Other
|
(19
|
)
|
(2
|
)
|
(4
|
)
|
|||||
|
Total
|
$
|
(196
|
)
|
$
|
(474
|
)
|
$
|
(831
|
)
|
||
|
Other (income) expense, including asset retirement obligations
|
|||||||||||
|
NACoal
|
$
|
1,447
|
|
$
|
(1,683
|
)
|
$
|
44
|
|
||
|
HBB
|
770
|
|
1,526
|
|
1,136
|
|
|||||
|
KC
|
67
|
|
86
|
|
65
|
|
|||||
|
NACCO and Other
|
(535
|
)
|
649
|
|
2,284
|
|
|||||
|
Total
|
$
|
1,749
|
|
$
|
578
|
|
$
|
3,529
|
|
||
|
Income tax provision (benefit)
|
|
|
|
|
|
|
|||||
|
NACoal
|
$
|
(8,212
|
)
|
$
|
(7,960
|
)
|
$
|
(43,308
|
)
|
||
|
HBB
|
14,541
|
|
11,751
|
|
10,359
|
|
|||||
|
KC
|
455
|
|
368
|
|
(2,904
|
)
|
|||||
|
NACCO and Other
|
(1,909
|
)
|
(1,550
|
)
|
(2,420
|
)
|
|||||
|
Eliminations
|
(12
|
)
|
206
|
|
(182
|
)
|
|||||
|
Total
|
$
|
4,863
|
|
$
|
2,815
|
|
$
|
(38,455
|
)
|
||
|
Net Income (loss)
|
|
|
|
|
|
|
|||||
|
NACoal
|
$
|
8,244
|
|
$
|
5,619
|
|
$
|
(50,977
|
)
|
||
|
HBB
|
26,557
|
|
19,749
|
|
23,144
|
|
|||||
|
KC
|
(355
|
)
|
(420
|
)
|
(4,603
|
)
|
|||||
|
NACCO and Other
|
(4,816
|
)
|
(3,346
|
)
|
(5,344
|
)
|
|||||
|
Eliminations
|
(23
|
)
|
382
|
|
(338
|
)
|
|||||
|
Total
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
||
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
|
|
2016
|
2015
|
2014
|
||||||||
|
Total assets
|
|
|
|
||||||||
|
NACoal
|
$
|
287,011
|
|
$
|
303,138
|
|
$
|
389,964
|
|
||
|
HBB
|
257,167
|
|
253,874
|
|
270,265
|
|
|||||
|
KC
|
54,004
|
|
56,177
|
|
56,260
|
|
|||||
|
NACCO and Other
|
109,022
|
|
64,069
|
|
96,918
|
|
|||||
|
Eliminations
|
(39,183
|
)
|
(21,850
|
)
|
(42,887
|
)
|
|||||
|
Total
|
$
|
668,021
|
|
$
|
655,408
|
|
$
|
770,520
|
|
||
|
Depreciation, depletion and amortization
|
|
|
|
||||||||
|
NACoal
|
$
|
12,682
|
|
$
|
17,067
|
|
$
|
22,003
|
|
||
|
HBB
|
4,681
|
|
4,750
|
|
2,693
|
|
|||||
|
KC
|
1,545
|
|
1,558
|
|
3,048
|
|
|||||
|
NACCO and Other
|
368
|
|
305
|
|
326
|
|
|||||
|
Total
|
$
|
19,276
|
|
$
|
23,680
|
|
$
|
28,070
|
|
||
|
Capital expenditures, excluding acquisitions of business
|
|
|
|
||||||||
|
NACoal
|
$
|
10,109
|
|
$
|
4,116
|
|
$
|
51,228
|
|
||
|
HBB
|
4,814
|
|
4,365
|
|
4,516
|
|
|||||
|
KC
|
1,188
|
|
1,806
|
|
1,193
|
|
|||||
|
NACCO and Other
|
56
|
|
328
|
|
563
|
|
|||||
|
Total
|
$
|
16,167
|
|
$
|
10,615
|
|
$
|
57,500
|
|
||
Data By Geographic Region
No single country outside of the U.S. comprised 10% or more of the Company's revenues from unaffiliated customers.
|
|
United
States
|
Other
|
Consolidated
|
||||||||
|
2016
|
|
|
|
||||||||
|
Revenues from unaffiliated customers, based on the customers’ location
|
$
|
737,448
|
|
$
|
118,990
|
|
$
|
856,438
|
|
||
|
Long-lived assets
|
$
|
157,022
|
|
$
|
5,082
|
|
$
|
162,104
|
|
||
|
2015
|
|
|
|
||||||||
|
Revenues from unaffiliated customers, based on the customers’ location
|
$
|
795,071
|
|
$
|
120,789
|
|
$
|
915,860
|
|
||
|
Long-lived assets
|
$
|
151,618
|
|
$
|
5,564
|
|
$
|
157,182
|
|
||
|
2014
|
|
|
|
||||||||
|
Revenues from unaffiliated customers, based on the customers’ location
|
$
|
779,890
|
|
$
|
116,892
|
|
$
|
896,782
|
|
||
|
Long-lived assets
|
$
|
182,116
|
|
$
|
5,780
|
|
$
|
187,896
|
|
||
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 17—
Quarterly Results of Operations (Unaudited)
A summary of the unaudited results of operations for the year ended
December 31
is as follows:
|
|
2016
|
||||||||||||||
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||
|
Revenues
|
|
|
|
||||||||||||
|
NACoal
|
$
|
30,287
|
|
$
|
23,089
|
|
$
|
32,402
|
|
$
|
25,303
|
|
|||
|
HBB
|
115,740
|
|
127,054
|
|
157,264
|
|
205,112
|
|
|||||||
|
KC
|
28,383
|
|
28,634
|
|
32,895
|
|
54,439
|
|
|||||||
|
Eliminations
|
(989
|
)
|
(770
|
)
|
(1,769
|
)
|
(636
|
)
|
|||||||
|
|
$
|
173,421
|
|
$
|
178,007
|
|
$
|
220,792
|
|
$
|
284,218
|
|
|||
|
Gross profit
|
$
|
40,005
|
|
$
|
40,529
|
|
$
|
51,708
|
|
$
|
73,611
|
|
|||
|
Earnings of unconsolidated mines
|
$
|
12,648
|
|
$
|
13,035
|
|
$
|
15,102
|
|
$
|
14,453
|
|
|||
|
Operating profit (loss)
|
|||||||||||||||
|
NACoal
(1)(2)
|
$
|
9,742
|
|
$
|
4,823
|
|
$
|
(10,912
|
)
|
$
|
1,966
|
|
|||
|
HBB
|
67
|
|
4,696
|
|
14,399
|
|
23,871
|
|
|||||||
|
KC
|
(2,890
|
)
|
(3,011
|
)
|
(921
|
)
|
7,198
|
|
|||||||
|
NACCO and Other
|
(1,441
|
)
|
(1,297
|
)
|
(1,867
|
)
|
(2,673
|
)
|
|||||||
|
Eliminations
|
(66
|
)
|
(1
|
)
|
—
|
|
32
|
|
|||||||
|
|
$
|
5,412
|
|
$
|
5,210
|
|
$
|
699
|
|
$
|
30,394
|
|
|||
|
NACoal
|
$
|
8,253
|
|
$
|
3,324
|
|
$
|
(12,677
|
)
|
$
|
9,344
|
|
|||
|
HBB
|
(261
|
)
|
2,934
|
|
9,511
|
|
14,373
|
|
|||||||
|
KC
|
(1,868
|
)
|
(1,954
|
)
|
(717
|
)
|
4,184
|
|
|||||||
|
NACCO and Other
|
(1,067
|
)
|
(1,118
|
)
|
(1,526
|
)
|
(1,105
|
)
|
|||||||
|
Eliminations
|
(2,255
|
)
|
(70
|
)
|
4,967
|
|
(2,665
|
)
|
|||||||
|
Net income (loss)
|
$
|
2,802
|
|
$
|
3,116
|
|
$
|
(442
|
)
|
$
|
24,131
|
|
|||
|
Basic earnings (loss) per share
|
$
|
0.41
|
|
$
|
0.45
|
|
$
|
(0.07
|
)
|
$
|
3.56
|
|
|||
|
Diluted earnings (loss) per share
|
$
|
0.41
|
|
$
|
0.45
|
|
$
|
(0.07
|
)
|
$
|
3.53
|
|
|||
(1)
During the fourth quarter of 2016, NACoal recorded a
$3.3 million
charge related to the resolution of a legal matter. This charge is recorded on the line "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
(2)
During the third quarter of 2016, NACoal recorded a non-cash impairment charge of
$17.4 million
related to Centennial assets. See
Note 3
and
Note 10
for further discussion of the Company's asset impairment charge.
The significant increase in gross profit of HBB and KC in the fourth quarter of
2016
compared with the prior quarters of
2016
is primarily due to the seasonal nature of of their businesses.
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
|
|
2015
|
||||||||||||||
|
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||
|
Revenues
|
|
|
|
|
|||||||||||
|
NACoal
|
$
|
41,319
|
|
$
|
37,942
|
|
$
|
42,704
|
|
$
|
26,033
|
|
|||
|
HBB
|
123,293
|
|
129,498
|
|
163,291
|
|
204,895
|
|
|||||||
|
KC
|
29,967
|
|
29,782
|
|
34,708
|
|
56,531
|
|
|||||||
|
Eliminations
|
(845
|
)
|
(722
|
)
|
(1,596
|
)
|
(940
|
)
|
|||||||
|
|
$
|
193,734
|
|
$
|
196,500
|
|
$
|
239,107
|
|
$
|
286,519
|
|
|||
|
Gross profit
|
$
|
38,189
|
|
$
|
35,381
|
|
$
|
42,215
|
|
$
|
63,711
|
|
|||
|
Earnings of unconsolidated mines
|
$
|
12,553
|
|
$
|
12,076
|
|
$
|
12,234
|
|
$
|
11,569
|
|
|||
|
Operating profit (loss)
|
|||||||||||||||
|
NACoal
(1)
|
$
|
5,207
|
|
$
|
2,382
|
|
$
|
(4,010
|
)
|
$
|
(3,058
|
)
|
|||
|
HBB
|
2,188
|
|
2,880
|
|
11,643
|
|
18,090
|
|
|||||||
|
KC
|
(3,045
|
)
|
(2,972
|
)
|
(843
|
)
|
7,025
|
|
|||||||
|
NACCO and Other
|
(1,289
|
)
|
(836
|
)
|
(1,142
|
)
|
(981
|
)
|
|||||||
|
Eliminations
|
180
|
|
(166
|
)
|
112
|
|
462
|
|
|||||||
|
|
$
|
3,241
|
|
$
|
1,288
|
|
$
|
5,760
|
|
$
|
21,538
|
|
|||
|
NACoal
|
$
|
4,547
|
|
$
|
4,199
|
|
$
|
(5,345
|
)
|
$
|
2,218
|
|
|||
|
HBB
|
618
|
|
1,618
|
|
6,378
|
|
11,135
|
|
|||||||
|
KC
|
(1,893
|
)
|
(1,847
|
)
|
(550
|
)
|
3,870
|
|
|||||||
|
NACCO and Other
|
(1,239
|
)
|
(697
|
)
|
(774
|
)
|
(636
|
)
|
|||||||
|
Eliminations
|
(1,006
|
)
|
(3,548
|
)
|
3,432
|
|
1,504
|
|
|||||||
|
Net income (loss)
|
$
|
1,027
|
|
$
|
(275
|
)
|
$
|
3,141
|
|
$
|
18,091
|
|
|||
|
Basic earnings (loss) per share
|
$
|
0.14
|
|
$
|
(0.04
|
)
|
$
|
0.45
|
|
$
|
2.65
|
|
|||
|
Diluted earnings (loss) per share
|
$
|
0.14
|
|
$
|
(0.04
|
)
|
$
|
0.45
|
|
$
|
2.63
|
|
|||
(1)
During the third quarter of 2015, NACoal recorded a
$7.5 million
charge related to Centennial's asset retirement obligations. See
Note 3
for further information.
The significant increase in gross profit of HBB and KC in the fourth quarter of
2015
compared with the prior quarters of
2015
is primarily due to the seasonal nature of of their businesses.
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
NOTE 18—
Parent Company Condensed Balance Sheets
The condensed balance sheets of NACCO, the parent company, at
December 31
are as follows:
|
|
2016
|
2015
|
|||||
|
ASSETS
|
|
|
|||||
|
Cash and cash equivalents
|
$
|
57,917
|
|
$
|
22,506
|
|
|
|
Current intercompany accounts receivable, net
|
—
|
|
2,555
|
|
|||
|
Other current assets
|
2,518
|
|
1,241
|
|
|||
|
Investment in subsidiaries
|
|
|
|||||
|
HBB
|
44,057
|
|
51,377
|
|
|||
|
KC
|
21,394
|
|
31,750
|
|
|||
|
NACoal
|
105,645
|
|
108,381
|
|
|||
|
Other
|
14,463
|
|
13,516
|
|
|||
|
|
185,559
|
|
205,024
|
|
|||
|
Property, plant and equipment, net
|
935
|
|
1,276
|
|
|||
|
Other non-current assets
|
13,870
|
|
8,534
|
|
|||
|
Total Assets
|
$
|
260,799
|
|
$
|
241,136
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|||||
|
Current liabilities
|
$
|
7,055
|
|
$
|
6,323
|
|
|
|
Current intercompany accounts payable, net
|
1,406
|
|
—
|
|
|||
|
Note payable to Bellaire
|
18,100
|
|
18,700
|
|
|||
|
Other non-current liabilities
|
13,945
|
|
14,975
|
|
|||
|
Stockholders’ equity
|
220,293
|
|
201,138
|
|
|||
|
Total Liabilities and Stockholders’ Equity
|
$
|
260,799
|
|
$
|
241,136
|
|
|
The credit agreements at NACoal, HBB and KC allow the transfer of assets to NACCO under certain circumstances. The amount of NACCO's investment in NACoal, HBB, KC and NACCO and Other that was restricted at
December 31, 2016
totaled approximately
$173.1 million
. The amount of unrestricted cash available to NACCO included in “Investment in subsidiaries” was
$0.4 million
at
December 31, 2016
. Dividends and management fees from its subsidiaries are the primary sources of cash for NACCO.
NOTE 19—
Unconsolidated Subsidiaries
NACoal's wholly owned unconsolidated subsidiaries each meet the definition of a variable interest entity.
See Note 1
for a discussion of these entities. The income taxes resulting from the operations of the unconsolidated subsidiaries are solely the responsibility of the Company. The pre-tax income from the unconsolidated subsidiaries, excluding NoDak, is reported on the line “Earnings of unconsolidated mines” in the Consolidated Statements of Operations, with related income taxes included in the provision for income taxes. The Company has included the pre-tax earnings of the unconsolidated subsidiaries, excluding NoDak, above operating profit as they are an integral component of the Company's business and operating results. The pre-tax income from NoDak is reported on the line "Income from other unconsolidated affiliates" in the "Other (income) expense" section of the Consolidated Statements of Operations, with the related income taxes included in the provision for income taxes.
The investment in the unconsolidated subsidiaries and related tax positions totaled
$31.1 million
and
$24.6 million
at
December 31, 2016
and
2015
, respectively. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was
$4.6 million
at
December 31, 2016
, and
$4.0 million
at both
December 31, 2015
and
December 31, 2014
.
NACoal is a party to certain guarantees related to Coyote Creek. Under certain circumstances of default or termination of Coyote Creek’s Lignite Sales Agreement (“LSA”), NACoal would be obligated for payment of a "make-whole" amount to
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
(Tabular Amounts in Thousands, Except Per Share and Percentage Data)
Coyote Creek’s third party lenders. The “make-whole” amount is based on the excess, if any, of the discounted value of the remaining scheduled debt payments over the principal amount. In addition, in the event Coyote Creek’s LSA is terminated on or after January 1, 2024 by Coyote Creek’s customers, NACoal is obligated to purchase Coyote Creek’s dragline and rolling stock for the then net book value of those assets. To date, no payments have been required from NACoal since the inception of these guarantees. 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.
Summarized financial information for the unconsolidated subsidiaries is as follows:
|
|
2016
|
2015
|
2014
|
||||||||
|
Statement of Operations
|
|
|
|
||||||||
|
Revenues
|
$
|
649,050
|
|
$
|
608,349
|
|
$
|
579,031
|
|
||
|
Gross profit
|
$
|
80,068
|
|
$
|
71,727
|
|
$
|
74,244
|
|
||
|
Income before income taxes
|
$
|
54,857
|
|
$
|
49,641
|
|
$
|
48,592
|
|
||
|
Net income
|
$
|
40,590
|
|
$
|
39,181
|
|
$
|
37,067
|
|
||
|
Balance Sheet
|
|
||||||||||
|
Current assets
|
$
|
160,554
|
|
$
|
160,498
|
|
|
||||
|
Non-current assets
|
$
|
901,221
|
|
$
|
913,402
|
|
|
||||
|
Current liabilities
|
$
|
127,361
|
|
$
|
129,126
|
|
|
||||
|
Non-current liabilities
|
$
|
929,774
|
|
$
|
940,782
|
|
|
||||
NACoal received dividends of
$39.9 million
and
$39.1 million
from the unconsolidated subsidiaries in
2016
and
2015
, respectively.
NOTE 20—
Related Party Transactions
Legal services rendered by Jones Day approximated
$1.2 million
,
$1.6 million
and
$1.9 million
for the years ended
December 31, 2016
,
2015
and
2014
, respectively. A director of the Company was Of Counsel with this law firm during
2014
.
Hyster-Yale Materials Handling, Inc. ("Hyster-Yale") is a former subsidiary of the Company that was spun-off to stockholders in 2012. In the ordinary course of business, the Company's subsidiaries lease or buy Hyster-Yale lift trucks. The terms may not be comparable to terms that would be obtained in a transaction between unaffiliated parties.
F-44
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED BALANCE SHEETS
|
|
December 31
|
||||||
|
|
2016
|
2015
|
|||||
|
|
(In thousands)
|
||||||
|
ASSETS
|
|||||||
|
Cash and cash equivalents
|
$
|
57,917
|
|
$
|
22,506
|
|
|
|
Current intercompany accounts receivable, net
|
—
|
|
2,555
|
|
|||
|
Other current assets
|
2,518
|
|
1,241
|
|
|||
|
Investment in subsidiaries
|
|
|
|||||
|
HBB
|
44,057
|
|
51,377
|
|
|||
|
KC
|
21,394
|
|
31,750
|
|
|||
|
NACoal
|
105,645
|
|
108,381
|
|
|||
|
Other
|
14,463
|
|
13,516
|
|
|||
|
|
185,559
|
|
205,024
|
|
|||
|
Property, plant and equipment, net
|
935
|
|
1,276
|
|
|||
|
Other non-current assets
|
13,870
|
|
8,534
|
|
|||
|
Total Assets
|
$
|
260,799
|
|
$
|
241,136
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|||||||
|
Current liabilities
|
$
|
7,055
|
|
$
|
6,323
|
|
|
|
Current intercompany accounts payable, net
|
1,406
|
|
—
|
|
|||
|
Note payable to Bellaire
|
18,100
|
|
18,700
|
|
|||
|
Other non-current liabilities
|
13,945
|
|
14,975
|
|
|||
|
Stockholders’ equity
|
220,293
|
|
201,138
|
|
|||
|
Total Liabilities and Stockholders’ Equity
|
$
|
260,799
|
|
$
|
241,136
|
|
|
See Notes to Parent Company Condensed Financial Statements.
F-45
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Year Ended December 31
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
|
(In thousands)
|
||||||||||
|
(Income) expense:
|
|
|
|
||||||||
|
Intercompany interest expense
|
$
|
1,285
|
|
$
|
1,309
|
|
$
|
1,305
|
|
||
|
Other, net
|
(332
|
)
|
(270
|
)
|
(276
|
)
|
|||||
|
|
953
|
|
1,039
|
|
1,029
|
|
|||||
|
Administrative and general expenses
|
6,881
|
|
3,704
|
|
4,862
|
|
|||||
|
Loss before income taxes
|
(7,834
|
)
|
(4,743
|
)
|
(5,891
|
)
|
|||||
|
Income tax benefit
|
(2,295
|
)
|
(1,496
|
)
|
(1,764
|
)
|
|||||
|
Net loss before equity in earnings of subsidiaries
|
(5,539
|
)
|
(3,247
|
)
|
(4,127
|
)
|
|||||
|
Equity in earnings of subsidiaries
|
35,146
|
|
25,231
|
|
(33,991
|
)
|
|||||
|
Net income (loss)
|
29,607
|
|
21,984
|
|
(38,118
|
)
|
|||||
|
Foreign currency translation adjustment
|
(2,078
|
)
|
(2,756
|
)
|
(1,896
|
)
|
|||||
|
Deferred gain on available for sale securities, net of tax
|
413
|
|
17
|
|
442
|
|
|||||
|
Current period cash flow hedging activity, net of $73 tax benefit in 2016, $357 tax benefit in 2015 and $838 tax benefit in 2014
|
(252
|
)
|
(577
|
)
|
(1,518
|
)
|
|||||
|
Reclassification of hedging activities into earnings, net of $419 tax benefit in 2016, $191 tax benefit in 2015 and $489 tax benefit in 2014
|
757
|
|
409
|
|
898
|
|
|||||
|
Current period pension and postretirement plan adjustment, net of $1,098 tax benefit in 2016, $1,222 tax benefit in 2015 and $3,292 tax benefit in 2014
|
(2,011
|
)
|
(1,204
|
)
|
(6,483
|
)
|
|||||
|
Reclassification of pension and postretirement adjustments into earnings, net of $408 tax benefit in 2016, $420 tax benefit in 2015 and $313 tax benefit in 2014
|
688
|
|
856
|
|
627
|
|
|||||
|
Total other comprehensive loss
|
(2,483
|
)
|
(3,255
|
)
|
(7,930
|
)
|
|||||
|
Comprehensive Income (loss)
|
$
|
27,124
|
|
$
|
18,729
|
|
$
|
(46,048
|
)
|
||
See Notes to Parent Company Condensed Financial Statements.
F-46
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
PARENT COMPANY CONDENSED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31
|
||||||||||
|
|
2016
|
2015
|
2014
|
||||||||
|
|
(In thousands)
|
||||||||||
|
Operating Activities
|
|
|
|
||||||||
|
Net income (loss)
|
$
|
29,607
|
|
$
|
21,984
|
|
$
|
(38,118
|
)
|
||
|
Equity in earnings of subsidiaries
|
35,146
|
|
25,231
|
|
(33,991
|
)
|
|||||
|
Parent company only net loss
|
(5,539
|
)
|
(3,247
|
)
|
(4,127
|
)
|
|||||
|
Net changes related to operating activities
|
2,684
|
|
(11,015
|
)
|
5,710
|
|
|||||
|
Net cash provided by (used for) operating activities
|
(2,855
|
)
|
(14,262
|
)
|
1,583
|
|
|||||
|
Investing Activities
|
|
|
|
||||||||
|
Expenditures for property, plant and equipment
|
(25
|
)
|
(328
|
)
|
(103
|
)
|
|||||
|
Net cash used for investing activities
|
(25
|
)
|
(328
|
)
|
(103
|
)
|
|||||
|
Financing Activities
|
|
|
|
||||||||
|
Cash dividends received from subsidiaries
|
52,200
|
|
15,000
|
|
22,300
|
|
|||||
|
Notes payable to Bellaire
|
(600
|
)
|
—
|
|
(1,750
|
)
|
|||||
|
Capital contributions to subsidiaries
|
—
|
|
—
|
|
(19,800
|
)
|
|||||
|
Purchase of treasury shares
|
(6,044
|
)
|
(24,010
|
)
|
(35,075
|
)
|
|||||
|
Cash dividends paid
|
(7,262
|
)
|
(7,296
|
)
|
(7,755
|
)
|
|||||
|
Other
|
(3
|
)
|
(13
|
)
|
(20
|
)
|
|||||
|
Net cash used for financing activities
|
38,291
|
|
(16,319
|
)
|
(42,100
|
)
|
|||||
|
Cash and cash equivalents
|
|
|
|
||||||||
|
Decrease for the period
|
35,411
|
|
(30,909
|
)
|
(40,620
|
)
|
|||||
|
Balance at the beginning of the period
|
22,506
|
|
53,415
|
|
94,035
|
|
|||||
|
Balance at the end of the period
|
$
|
57,917
|
|
$
|
22,506
|
|
$
|
53,415
|
|
||
See Notes to Parent Company Condensed Financial Statements.
F-47
SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF THE PARENT
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2016
,
2015
AND
2014
The notes to Consolidated Financial Statements, incorporated in Item 15 of this Form 10-K, are hereby incorporated by reference into these Notes to Parent Company Condensed Financial Statements.
NOTE A — ACCOUNTING POLICIES
NACCO Industries, Inc. (the parent company or “NACCO”) is a holding company with subsidiaries that operate in three principal industries. In the Parent Company Condensed Financial Statements, NACCO's investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. NACCO's share of net income of unconsolidated subsidiaries is included in net income using the equity method. Parent Company financial statements should be read in conjunction with the Company's consolidated financial statements.
NOTE B — LONG-TERM OBLIGATIONS AND GUARANTEES
It is NACCO's policy not to guarantee the debt of its subsidiaries.
NOTE C — UNRESTRICTED CASH
The amount of unrestricted cash available to NACCO, included in “Investment in subsidiaries,” was
$0.4 million
at
December 31, 2016
and was in addition to the
$57.9 million
of cash included in the Parent Company Condensed Balance Sheet at
December 31, 2016
.
F-48
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
NACCO INDUSTRIES, INC. AND SUBSIDIARIES
YEAR ENDED
DECEMBER 31, 2016
,
2015
AND
2014
|
|
|
Additions
|
|
|
||||||||||||||||||
|
Description
|
Balance at Beginning of Period
|
Charged to
Costs and
Expenses
|
Charged to
Other Accounts
— Describe
|
Deductions
— Describe
|
Balance at
End of
Period (C)
|
|||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||||
|
2016
|
|
|
|
|
|
|
||||||||||||||||
|
Reserves deducted from asset accounts:
|
|
|
|
|
|
|
||||||||||||||||
|
Allowance for doubtful accounts
|
$
|
2,404
|
|
$
|
29
|
|
$
|
—
|
|
$
|
48
|
|
(A)
|
$
|
2,385
|
|
||||||
|
Allowance for discounts, adjustments and returns
|
$
|
17,397
|
|
$
|
21,692
|
|
$
|
241
|
|
$
|
24,680
|
|
(B)
|
$
|
14,650
|
|
||||||
|
Deferred tax valuation allowances
|
$
|
11,723
|
|
$
|
2,750
|
|
$
|
22
|
|
—
|
|
$
|
14,495
|
|
||||||||
|
2015
|
|
|
|
|
|
|
||||||||||||||||
|
Reserves deducted from asset accounts:
|
|
|
|
|
|
|
||||||||||||||||
|
Allowance for doubtful accounts
|
$
|
2,731
|
|
$
|
18
|
|
$
|
—
|
|
$
|
345
|
|
(A)
|
$
|
2,404
|
|
||||||
|
Allowance for discounts, adjustments and returns
|
$
|
15,048
|
|
$
|
25,150
|
|
$
|
1,587
|
|
$
|
24,388
|
|
(B)
|
$
|
17,397
|
|
||||||
|
Deferred tax valuation allowances
|
$
|
8,521
|
|
$
|
2,699
|
|
$
|
503
|
|
$
|
—
|
|
$
|
11,723
|
|
|||||||
|
2014
|
|
|
|
|
|
|
||||||||||||||||
|
Reserves deducted from asset accounts:
|
|
|
|
|
|
|
||||||||||||||||
|
Allowance for doubtful accounts
|
$
|
846
|
|
$
|
2,035
|
|
$
|
—
|
|
$
|
150
|
|
(A)
|
$
|
2,731
|
|
||||||
|
Allowance for discounts, adjustments and returns
|
$
|
12,859
|
|
$
|
23,629
|
|
$
|
—
|
|
$
|
21,440
|
|
(B)
|
$
|
15,048
|
|
||||||
|
Deferred tax valuation allowances
|
$
|
2,280
|
|
$
|
6,239
|
|
$
|
2
|
|
$
|
—
|
|
$
|
8,521
|
|
|||||||
|
(A)
|
Write-offs, net of recoveries.
|
|
(B)
|
Payments and customer deductions for product returns, discounts and allowances.
|
|
(C)
|
Balances which are not required to be presented and those which are immaterial have been omitted.
|
F-49
EXHIBIT INDEX
(3) Articles of Incorporation and By-laws.
|
3.1(i)
|
|
Restated Certificate of Incorporation of the Company is incorporated herein by reference to Exhibit 3(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172.
|
|
3.1(ii)
|
|
Amended and Restated By-laws of the Company are incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed by the Company on December 18, 2014, Commission File Number 1-9172.
|
(4) Instruments defining the rights of security holders, including indentures.
|
4.1
|
|
The Company by this filing agrees, upon request, to file with the Securities and Exchange Commission the instruments defining the rights of holders of long-term debt of the Company and its subsidiaries where the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis.
|
|
4.2
|
|
The Mortgage and Security Agreement, dated April 8, 1976, between The Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively, as Mortgagee) is incorporated herein by reference to Exhibit 4(ii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992, Commission File Number 1-9172.
|
|
4.3
|
|
Amendment No. 1 to the Mortgage and Security Agreement, dated as of December 15, 1993, between Falkirk Mining Company (as Mortgagor) and Cooperative Power Association and United Power Association (collectively, as Mortgagee) is incorporated herein by reference to Exhibit 4(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File Number 1-9172.
|
|
4.4
|
|
Amended and Restated Stockholders' Agreement, dated as of September 28, 2012, amongst the signatories thereto, NACCO Industries, Inc., as depository, and NACCO Industries, Inc. is incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed by the Company on October 4, 2012, Commission File Number 1-9172.
|
|
4.5
|
First Amendment to the Amended and Restated Stockholders' Agreement, dated as of February 16, 2016, among the signatories thereto, the New Participating Stockholders (as defined therein), NACCO Industries, Inc., as depository, and NACCO Industries, Inc., is incorporated herein by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, Commission File Number 1-9172.
|
|
|
4.6
|
Second Amendment to the Amended and Restated Stockholders' Agreement, dated as of February 14, 2017, among the signatories thereto, the New Participating Stockholders (as defined therein), NACCO Industries, Inc., as depository, and NACCO Industries, Inc.**
|
|
X-1
(10) Material Contracts.
|
10.1*
|
|
The NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.2*
|
|
Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under the NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.3*
|
|
Form of Non-Qualified Stock Option Agreement under the NACCO Industries, Inc. 1975 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(iv) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.4*
|
|
The NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(v) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.5*
|
|
Form of Non-Qualified Stock Option Agreement under the NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(vi) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.6*
|
|
Form of Incentive Stock Option Agreement for incentive stock options granted after 1986 under the NACCO Industries, Inc. 1981 Stock Option Plan (as amended and restated as of July 17, 1986) is incorporated herein by reference to Exhibit 10(viii) to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991, Commission File Number 1-9172.
|
|
10.7*
|
|
NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan (Amended and Restated March 1, 2012) is incorporated herein by reference to Appendix B to NACCO's Definitive Proxy Statement, filed by NACCO on March 16, 2012, Commission File Number 1-9172.
|
|
10.8*
|
|
NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated March 1, 2012) is incorporated herein by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 16, 2012, Commission File Number 1-9172.
|
|
10.9*
|
|
NACCO Industries, Inc. Non-Employee Directors' Equity Compensation Plan (Amended and Restated May 11, 2011) is incorporated herein by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 18, 2011, Commission File Number 1-9172.
|
X-2
|
10.10*
|
NACCO Industries, Inc. Executive Excess Retirement Plan (Effective as of September 28, 2012) is incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
|
|
|
10.11*
|
Amendment No. 1 to the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2012) is incorporated by reference to Exhibit 10.7 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
|
|
|
10.12*
|
Form of Award Agreement for the NACCO Industries, Inc. Supplemental Executive Long-Term Incentive Bonus Plan is incorporated by reference to Exhibit 10.8 to the Company's Current Report on Form 8-K, filed by the Company on September 17, 2012, Commission File Number 1-9172.
|
|
|
10.13*
|
Form of Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
|
|
|
10.14*
|
Form of Non-Cashless Exercise Award Agreement for the NACCO Industries, Inc. Executive Long-Term Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
|
|
|
10.15
|
Separation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc is incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
|
|
|
10.16
|
Tax Allocation Agreement, dated as of September 28, 2012, by and between NACCO Industries, Inc. and Hyster-Yale Materials Handling, Inc. is incorporated herein by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
|
|
|
10.17*
|
NACCO Industries, Inc. Annual Incentive Compensation Plan (Effective as of September 28, 2012) is incorporated herin by reference to Appendix A to NACCO's Definitive Proxy Statement, filed by the Company on March 22, 2013, Commission File Number 1-9172.
|
|
|
10.18*
|
The Retirement Benefit Plan for Alfred M. Rankin, Jr. (Amended and Restated Effective as of January 1, 2014) is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
|
|
|
10.19*
|
NACCO Industries, Inc. Unfunded Benefit Plan (Amended and Restated Effective as of January 1, 2014) is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 8-K, filed by the Company on February 14, 2014, Commission File Number 1-9172.
|
|
|
10.20*
|
|
The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K, filed by the Company on December 19, 2007, Commission File Number 1-9172.
|
|
10.21*
|
The North American Coal Corporation Long-Term Incentive Compensation Plan (Effective as of January 1, 2016) is is incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed by the Company on May 11, 2016, Commission File Number 1-9172.
|
|
|
10.22*
|
|
Amendment No. 1 to The North America Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, Commission File Number 1-9172.
|
|
10.23*
|
The North American Coal Corporation Annual Incentive Compensation Plan (Amended and Restated Effective March 1, 2015) is incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed by the Company on May 18, 2015, Commission File Number 1-9172.
|
|
|
10.24*
|
|
Amendment No. 2 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010, Commission File Number 1-9172.
|
|
10.25
|
Share and Membership Interest Purchase Agreement by and among TRU Energy Services, LLC, as Buyer, the sellers party thereto, and the trustees and beneficiaries party thereto dated as of August 31, 2012 is incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on September 5, 2012, Commission File Number 1-9172.
|
|
|
10.26
|
Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
|
|
|
10.27
|
First Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of June 1, 1994, is incorporated herein by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
|
|
|
10.28
|
Second Amendment to Coteau Lignite Sales Agreement by and between The Coteau Properties Company and Dakota Coal Company, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
|
|
X-3
|
10.29
|
Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of January 1, 1990, is incorporated herein by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.30
|
First Amendment to the Option and Put Agreement by and among The North American Coal Corporation, Dakota Coal Company and the State of North Dakota, dated as of June 1, 1994, is incorporated herein by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.31
|
Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of April 1, 1998, is incorporated herein by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
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10.32
|
First Amendment to Lignite Sales Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of August 30, 2016, is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on November 1, 2016, Commission File Number 1-9172.+
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10.33
|
Pay Scale Agreement by and between Mississippi Lignite Mining Company and Choctaw Generation Limited Partnership, dated as of September 29, 2005, is incorporated herein by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.34
|
Consent and Agreement by and among Mississippi Lignite Mining Company, Choctaw Generation Limited Partnership, SE Choctaw L.L.C. and Citibank, N.A., dated as of December 20, 2002, is incorporated herein by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.35
|
Second Restatement of Coal Sales Agreement by and between The Falkirk Mining Company and Great River Energy, dated as of January 1, 2007, is incorporated herein by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
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10.36
|
Amendment No. 1 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of January 21, 2011, is incorporated herein by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.37
|
Amendment No. 2 to Second Restatement of Coal Sales Agreement, by and between The Falkirk Mining Company and Great River Energy, dated as of March 1, 2014, is incorporated herein by reference to Exhibit 10.52 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Commission File Number 1-9172.
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10.38
|
Restatement of Option Agreement by and among The Falkirk Mining Company, Cooperative Power Association, United Power Association, and the State of North Dakota, dated as of January 1, 1997, is incorporated herein by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.39
|
Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern Electric Power Company, dated as of January 1, 2008, is incorporated herein by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.+
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10.40
|
Amendment No. 1 to Third Restatement of Lignite Mining Agreement by and between The Sabine Mining Company and Southwestern Electric Power Company, dated as of October 18, 2013 is incorporated herein by reference to Exhibit 10.43 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
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10.41
|
Option Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981, is incorporated herein by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.42
|
Addendum to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of January 15, 1981 is incorporated herein by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.43
|
Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Longview National Bank, dated as of December 2, 1996, is incorporated herein by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.44
|
Second Amendment to Option Agreement, by and among The North American Coal Corporation, Southwestern Electric Power Company and Regions Bank, dated as of January 1, 2008, is incorporated herein by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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X-4
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10.45
|
Agreement by and among The North American Coal Corporation, Southwestern Electric Power Company, Texas Commerce Bank-Longview, Nortex Mining Company and The Sabine Mining Company, dated as of June 30, 1988, is incorporated herein by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.46
|
Lignite Sales Agreement between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co. and Northwestern Corporation dated as of October 10, 2012 is incorporated herein by reference to Exhibit 10.58 to the Company’s Annual Report on Form 10-K, filed by the Company on March 6, 2013, Commission File Number 1-9172.++
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10.47
|
First Amendment to Lignite Sales Agreement, dated as of January 30, 2014, between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc. and NorthWestern Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 8-K, filed by the Company on January 30, 2014, Commission File Number 1-9172.
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10.48
|
Second Amendment to Lignite Sales Agreement, dated as of March 16, 2015, between Coyote Creek Mining Company, L.L.C. and Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., and NorthWestern Corporation is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on May 5, 2015, Commission File Number 1-9172.
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10.49*
|
Amendment No. 3 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, filed by the Company on October 1, 2013, Commission File Number 1-9172.
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10.50*
|
Amendment No. 4 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008) is incorporated herein by reference to Exhibit 10.54 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
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10.51*
|
Amendment No. 5 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008).
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10.52*
|
Amendment No. 6 to The North American Coal Corporation Supplemental Retirement Benefit Plan (Amended and Restated as of January 1, 2008).**
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10.53
|
Amended and Restated Credit Agreement by and among The North American Coal Corporation and the Lenders party thereto and PNC Capital Markets LLC, as Lead Arranger and Bookrunner, PNC Bank, National Association, as Administrative Agent, and KeyBank National Association and Regions Bank, as Co-Syndication Agents, dated as of November 22, 2013 is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on November 27, 2013, Commission File Number 1-9172.
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10.54
|
The North American Coal Corporation Excess Retirement Plan (Amended and Restated Effective January 1,
2016) is incorporated herein by reference to Exhibit 10.60 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, Commission File Number 1-9172.
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10.55
|
Agreement, dated as of March 16, 2015, among The North American Coal Corporation, Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc. and Northwestern Corporation is incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q, filed by the Company on May 5, 2015, Commission File Number 1-9172.
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10.56
|
Credit Agreement, dated as of April 29, 2010, among The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Retail Finance, LLC and the other lenders thereto is incorporated herein by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.57
|
First Amendment to Credit Agreement, dated as of August 7, 2012, among The Kitchen Collection, LLC, as successor to The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Bank, National Association, as successor to Wells Fargo Retail Finance, LLC, and the other lenders thereto is incorporated herein by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q/A, filed by the Company on March 20, 2013, Commission File Number 1-9172.
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10.58
|
Second Amendment to Credit Agreement, dated as of September 19, 2014, among The Kitchen Collection, LLC, as successor to The Kitchen Collection, Inc., the borrowers and guarantors thereto, Wells Fargo Bank, National Association, as successor to Wells Fargo Retail Finance, LLC, is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on September 19, 2014, Commission File Number 1-9172.
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10.59
|
Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, Wells Fargo Capital Finance, LLC, as Sole Lead Arranger and Sole Lead Bookrunner, the Lenders that are Parties thereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of May 31, 2012 is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
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10.60
|
Amended and Restated Guaranty and Security Agreement, dated as of May 31, 2012, among Hamilton Beach Brands, Inc. and Hamilton Beach, Inc., as Grantors, and Wells Fargo Bank, National Association, as Administrative Agent is incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
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X-5
|
10.61
|
Amended and Restated Canadian Guarantee and Security Agreement, dated as of May 31, 2012, among Hamilton Beach Brands Canada, Inc., as Grantor, and Wells Fargo Bank, National Association, as Administrative Agent is incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed by the Company on June 6, 2012, Commission File Number 1-9172.
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10.62
|
Amendment No.1 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of July 29, 2014, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q, filed by the Company on July 30, 2014, Commission File Number 1-9172.
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10.63
|
Amendment No.2 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as US Borrower) and Hamilton Beach Brands Canada, Inc., (as Canadian Borrower) as Borrowers, dated as of November 20, 2014 is incorporated herein by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
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10.64
|
Amendment No. 3 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as Parent) and Weston Brands, LLC (as Weston) (collectively referred to as US Borrowers) and Hamilton Beach Brands Canada, Inc. (as Canadian Borrower) dated December 23, 2015.
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|
10.65
|
Amendment No. 4 to Amended and Restated Credit Agreement by and among Wells Fargo Bank, National Association, as Administrative Agent, the Lenders that are Parties Hereto as the Lenders, Hamilton Beach Brands, Inc. (as Parent) and Weston Brands, LLC (as Weston) (collectively referred to as US Borrowers) and Hamilton Beach Brands Canada, Inc. (as Canadian Borrower) dated June 30, 2016, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q, file by the Company on August 2, 2016, Commission File Number I-917.
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10.66*
|
Hamilton Beach Brands, Inc. Long-Term Incentive Compensation Plan (Amended and Restated Effective March 1, 2015) is incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed by the Company on May 18, 2015, Commission File Number 1-9172.
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10.67*
|
The Hamilton Beach Brands, Inc. Annual Incentive Compensation Plan (Effective January 1, 2014) is incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed by the Company on May 9, 2014, Commission File Number 1-9172.
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|
|
10.68*
|
The Hamilton Beach Brands, Inc. Excess Retirement Plan (As Amended and Restated Effective January 1, 2015) is incorporated herein by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, Commission File Number 1-9172.
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|
|
10.69*
|
Amendment No.1 to The Hamilton Beach Brands, Inc. Excess Retirement Plan (As Amended and Restated Effective January 1, 2015).
|
|
X-6
(21) Subsidiaries. A list of the subsidiaries of the Company is attached hereto as Exhibit 21.
(23) Consents of experts and counsel.
(24) Powers of Attorney.
(31) Rule 13a-14(a)/15d-14(a) Certifications.
|
23.1
|
Consents of experts and counsel.
|
|
|
24.1
|
|
A copy of a power of attorney for John P. Jumper is attached hereto as Exhibit 24.1.
|
|
24.2
|
|
A copy of a power of attorney for Dennis W. LaBarre is attached hereto as Exhibit 24.2.
|
|
24.3
|
|
A copy of a power of attorney for Michael S. Miller is attached hereto as Exhibit 24.3.
|
|
24.4
|
|
A copy of a power of attorney for Richard de J. Osborne is attached hereto as Exhibit 24.4.
|
|
24.5
|
|
A copy of a power of attorney for James A. Ratner is attached hereto as Exhibit 24.5.
|
|
24.6
|
|
A copy of a power of attorney for Britton T. Taplin is attached hereto as Exhibit 24.6.
|
|
24.7
|
|
A copy of a power of attorney for David F. Taplin is attached hereto as Exhibit 24.7.
|
|
24.8
|
|
A copy of a power of attorney for David B.H. Williams is attached hereto as Exhibit 24.8.
|
|
31(i)(1)
|
|
Certification of Alfred M. Rankin, Jr. pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(1).
|
|
31(i)(2)
|
|
Certification of Elizabeth I. Loveman pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act is attached hereto as Exhibit 31(i)(2).
|
|
(32)
|
|
Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Alfred M. Rankin, Jr. and Elizabeth I. Loveman.
|
|
(95)
|
|
Mine Safety Disclosure Exhibit is attached hereto as Exhibit 95.
|
|
(99)
|
Other exhibits not otherwise required to be filed. Audited Combined Financial Statements for The Unconsolidated Mines of the North American Coal Corporation, dated December 31, 2016, 2015 and 2014 with Report of Independent Auditors is attached hereto as Exhibit 99.**
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|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
*
|
|
Management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item15(b) of this Annual Report on Form 10-K.
|
|
**
|
Filed herewith.
|
|
|
+
|
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated March 27, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".
|
|
|
++
|
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated April 2, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".
|
|
|
+++
|
Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company's request for confidential treatment dated June 17, 2013. Portions for which confidential treatment has been granted have been marked with three asterisks [***] and a footnote indicating "Confidential treatment requested".
|
|
X-7
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresItem 4A. Executive Officers Of The RegistrantPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits and Financial Statement SchedulesItem 8, Item 15(a)(1) and (2), and Item 15(c)Item 15(a)(1) and (2)Note 1 Principles Of Consolidation and Nature Of OperationsNote 2 Significant Accounting PoliciesNote 3 Other TransactionsNote 4 InventoriesNote 5 Property, Plant and Equipment, NetNote 6 Intangible AssetsNote 7 Asset Retirement ObligationsNote 8 Current and Long-term FinancingNote 9 Derivative Financial InstrumentsNote 10 Fair Value DisclosureNote 11 Leasing ArrangementsNote 12 ContingenciesNote 13 Stockholders' Equity and Earnings Per ShareNote 14 Income TaxesNote 15 Retirement Benefit PlansNote 16 Business SegmentsNote 17 Quarterly Results Of Operations (unaudited)Note 18 Parent Company Condensed Balance SheetsNote 19 Unconsolidated SubsidiariesNote 20 Related Party Transactions