Company: NC
Filing Date: 2025-04-07
Form Type: ARS
Source: 0000789933-25-000013
Chunk: 138

Company: NACCO INDUSTRIES INC
Filing Date: 2025-04-07
Form: ARS
Chunk 138
---
 subsidiaries – accounting for variable interest entities Description of the Matter As discussed in Note 1 and 16 to the consolidated financial statements, certain of the operating coal mines and entities within the NAMining segment, collectively referred to as the “Unconsolidated Subsidiaries,” are variable interest entities (VIEs) and are accounted for under the equity method. In each case, NACCO is not the primary beneficiary of the VIE as it does not exercise financial control. Although NACCO owns 100% of the equity and manages the daily operations of the Unconsolidated Subsidiaries, the Company has determined that the equity capital provided by NACCO 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 activities that most significantly affect the economic performance of the entities. As a result, the Company is not the primary beneficiary and therefore does not consolidate these entities’ financial position or results of operations. The Company regularly evaluates if there are reconsideration events which could change the Company's conclusion as to whether these entities meet the definition of a VIE and the determination of the primary beneficiary. The income before income taxes associated with these VIEs is reported as Earnings of unconsolidated operations on the Consolidated Statements of Operations, and the Company’s investment is reported on the line Investments in unconsolidated subsidiaries in the Consolidated Balance Sheets. Evaluating the Company’s judgments in determining whether an entity is a VIE and the primary beneficiary of the VIE at formation and reconsideration events requires a high degree of complex auditor judgment. The Company also monitors for reconsideration events relating to the Unconsolidated Subsidiaries, which necessitates on-going critical judgments over whether any such events have arisen that require a re-evaluation of prior accounting judgments. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated and tested the design and operating effectiveness of the controls surrounding the Company’s application of the variable interest model and the processes to continually assess the implications of significant transactions and events that could trigger a VIE reconsideration event. For those entities where the Company has determined it is not the primary beneficiary, we evaluated the Company’s accounting for and disclosure of the Unconsolidated Subsidiaries under the equity method in accordance with the generally accepted accounting principles. To test the identification of reconsideration events, we obtained and inspected amendments to the agreements with customers, if any,