Company: NC
Filing Date: 2025-04-07
Form Type: ARS
Source: 0000789933-25-000013
Chunk: 53

Company: NACCO INDUSTRIES INC
Filing Date: 2025-04-07
Form: ARS
Chunk 53
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 alternative power 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 or decreased revenues could materially reduce our profitability. Profitability at MLMC is affected by customer demand for coal and changes in the indices that determine sales price and actual costs incurred. MLMC sells lignite at contractually agreed upon prices which are subject to changes in the level of established 19

indices over time. All production costs at MLMC are capitalized into inventory and recognized in cost of sales as tons are delivered. In periods of limited or no deliveries, MLMC may be required to reduce inventory carrying value using the lower of cost and net realizable value approach, which could adversely affect MLMC’s results of operations. Diesel fuel is heavily weighted among the indices used to determine the coal sales price. The diesel fuel-related component of the coal sales price is based on average price changes over time whereas the impact on actual costs from changes in diesel fuel prices is more immediate; therefore, fluctuations in diesel fuel prices can result in significant fluctuations in earnings at MLMC. Any reduction in customer demand at MLMC, including, but not limited to, reduced availability of the customer’s power plant, dispatch of power generated by other energy sources, fluctuations in demand due to unanticipated weather conditions, planned and unplanned outages at the customer's Red Hills Power Plant, economic conditions, governmental regulations and inflationary adjustments could have a material adverse effect on MLMC's financial condition, results of operations and cash flows. The Coal Mining segment's Unconsolidated Subsidiaries are subject to risks created by changes in customer demand and inflationary adjustments. The contracts with the Unconsolidated Subsidiaries' customers are primarily based on a management fee approach, whereby compensation includes reimbursement of all operating costs, plus a fee based on the amount of coal delivered. The fees earned adjust over time in line with various indices which reflect general U.S. inflation rates. During the production stage, the Unconsolidated Subsidiaries' customers pay us our agreed upon fee 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, reduced availability of the customer’s power plant, dispatch of power generated by other energy sources, fluctuations in demand due to unanticipated weather conditions, planned and unplanned outages at the Coal Mining segment's customers' facilities, economic conditions and governmental regulations could have