NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(In thousands, except as noted and per share amounts)
NOTE 1—
Nature of Operations and Basis of Presentation
Nature of Operations:
The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of NACCO Industries, Inc. (the “parent company” or “NACCO”) and its wholly owned subsidiaries (collectively, “NACCO Industries, Inc. and Subsidiaries” or the “Company”). Intercompany accounts and transactions are eliminated in consolidation. NACCO is the public holding company for The North American Coal Corporation. The North American Coal Corporation and its affiliated companies (collectively, “NACoal”) operate surface mines that supply coal primarily to power generation companies under long-term contracts, and provide other value-added services to natural resource companies. In addition, its North American Mining ("NAM") business operates and maintains draglines and other equipment under contracts with sellers of aggregates.
On September 29, 2017, the Company spun-off Hamilton Beach Brands Holding Company ("HBBHC"), a former wholly owned subsidiary. The financial position, results of operations and cash flows of HBBHC are reflected as discontinued operations for all periods presented through the date of the spin-off.
See Note 10
to the Unaudited Condensed Consolidated Financial Statements for further details regarding the spin-off.
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”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”). Liberty Fuels Company, LLC ("Liberty") ceased all mining and delivery of lignite in 2017 and commenced mine reclamation in 2018.
All of the operating coal mining subsidiaries other than MLMC are unconsolidated (collectively, the "Unconsolidated Operations"). 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. Although NACoal owns 100% of the equity and manages the daily operations of the Unconsolidated Operations, 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 positions or results of operations. The income taxes resulting from operations of the Unconsolidated Operations are solely the responsibility of the Company. The pre-tax income from the Unconsolidated Operations is reported on the line “Earnings of unconsolidated operations” 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 Operations above operating profit as they are an integral component of the Company's business and operating results.
The contracts with the customers of the unconsolidated subsidiaries eliminate exposure to spot coal market price fluctuations and are based on a "management fee" approach, whereby compensation includes reimbursement of all operating costs, plus a fee based on the amount of coal or limestone delivered. The fees earned 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. Centennial Natural Resources, LLC ("Centennial"), which ceased coal production at the end of 2015, is also a consolidated entity.
NAM provides value-added services for independently owned limestone quarries and is reimbursed by its customers based on actual costs plus a management fee per unit of limestone delivered. The financial results for NAM are included in the consolidated operations or Unconsolidated 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 expense (income)" 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.
All of the unconsolidated subsidiaries are accounted for under the equity method.
See Note 6
for further discussion.
Basis of Presentation:
These financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at
March 31, 2018
and the results of its operations, comprehensive income (loss), cash flows and changes in equity for the
three months ended
March 31, 2018
and
2017
have been included. These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2017
.
The balance sheet at
December 31, 2017
has been derived from the audited financial statements at that date but does not include all of the information or notes required by U.S. GAAP for complete financial statements.
Reclassifications:
As a result of the reclassification of HBBHC to discontinued operations and the adoption of new accounting standards, certain amounts in the prior period Unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation.
NOTE 2—
Recently Issued Accounting Standards
Revenue Recognition:
The Company accounts for revenue in accordance with Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers", which NACCO adopted on January 1, 2018, using the modified retrospective method. The adoption of ASC 606 resulted in the establishment of a
$2.6 million
contract liability and a
$2.1 million
cumulative effect adjustment to beginning retained earnings (net of tax of
$0.5 million
) as of January 1, 2018 to reflect the impact of changing the accounting for lease bonus payments received under certain royalty contracts. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period results are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605.
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Nature of Performance Obligations
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promised good or service that is distinct. To identify the performance obligations, the Company considers all of the goods or services promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.
Each mine or mine area has a contract with its respective customer that represents a contract under ASC 606. For its consolidated entities, NACoal’s performance obligations vary by contract and consist of the following:
At MLMC, each MMBtu delivered during the production period is considered a separate performance obligation. Revenue is recognized at the point in time that control of each MMBtu of lignite transfers to the customer. Fluctuations in revenue from period to period generally result from changes in customer demand.
At NAM entities, the management service to oversee the operation of the equipment and delivery of limestone is the performance obligation accounted for as a series. Performance momentarily creates an asset that the customer simultaneously receives and consumes; therefore, control is transferred to the customer over time. Consistent with the conclusion that the customer simultaneously receives and consumes the benefits provided, an input-based measure of progress is appropriate. As each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee and the general and administrative fee (as applicable). Fluctuations in revenue from period to period result from changes in customer demand and variances in reimbursable costs primarily due to increases and decreases in activity levels on individual contracts.
NACoal enters into royalty contracts which grant the right to its customers to explore, develop, produce and sell minerals controlled by the Company. These arrangements result in the transfer of mineral rights to a customer for a period of time;
however, no rights to the actual land are granted other than access for purposes of exploration, development, and production. The mineral rights revert back to NACoal at the expiration of the contract.
Under these royalty contracts, granting exclusive right, title, and interest in and to minerals, if any, is the performance obligation. The performance obligation under these contracts represents a series of distinct goods or services whereby each day of access that is provided is distinct. The transaction price consists of a variable sales based royalty and in certain arrangements a fixed component in the form of an up-front lease bonus payment.
As the amount of consideration the Company will ultimately be entitled to is entirely susceptible to factors outside its control, the entire amount of variable consideration is constrained at contract inception. The fixed portion of the transaction price will be recognized over the primary term of the contract which is generally five years.
Significant Judgments
The Company’s contracts contain different types of variable consideration including, but not limited to, management fees that adjust based on limestone yards or coal volumes or MMBtu delivered, however, the terms of these variable payments relate specifically to our efforts to satisfy one or more, but not all of, the performance obligations (or to a specific outcome from satisfying the performance obligations), in the contract. Therefore, the Company allocates each variable payment (and subsequent changes to that payment) entirely to the specific performance obligation to which it relates. Management fees as well as general and administrative charges are also adjusted based on changes in specified indices (e.g. CPI) to compensate for general inflation changes. Index adjustments, if applicable, are effective prospectively. Certain contracts include reimbursement of actual costs incurred.
Disaggregation of Revenue
In accordance with ASC 606-10-50, the Company disaggregates revenue from contracts with customers into major goods and service lines and timing of transfer of goods and services. The Company determined that disaggregating revenue into these categories achieves the disclosure objective of depicting how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. As noted in the segment information footnote, the Company’s business consists of one operating segment, NACoal.
The following table disaggregates revenue by major sources (in thousands):
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
MARCH 31
|
Major Goods/Service Lines
|
2018
|
|
2017
(1)
|
Consolidated operations - long-term contracts
|
$
|
28,023
|
|
|
$
|
25,201
|
|
Royalty
|
3,177
|
|
|
3,099
|
|
Total revenues
|
$
|
31,200
|
|
|
$
|
28,300
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
Goods transferred at a point in time
|
$
|
17,021
|
|
|
$
|
16,915
|
|
Services transferred over time
|
14,179
|
|
|
11,385
|
|
Total revenues
|
$
|
31,200
|
|
|
$
|
28,300
|
|
(1)
As noted above, prior period amounts have not been adjusted under the modified retrospective method.
Contract Balances
The opening and closing balances of the Company’s current and long-term contract liability, and receivables are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract balances
|
|
Accounts Receivable
|
|
Contract liability (current)
|
|
Contract liability (long-term)
|
Beginning balance January 1, 2018
|
$
|
14,611
|
|
|
$
|
860
|
|
|
$
|
1,766
|
|
Ending balance March 31, 2018
|
14,004
|
|
|
860
|
|
|
1,458
|
|
Increase (decrease)
|
$
|
(607
|
)
|
|
$
|
—
|
|
|
$
|
(308
|
)
|
As described above, NACoal enters into royalty contracts that grant exclusive right, title, and interest in and to minerals. The transaction price consists of a variable sales-based royalty and, in certain arrangements, a fixed component in the form of an up-front lease bonus payment. The timing of the payment of the fixed portion of the transaction price is upfront, however, the performance obligation is satisfied over the primary term of the contract, which is generally five years. Therefore, at the time any such up-front payment is received, a contract liability is recorded which represents deferred revenue. The difference between the opening and closing balance of this contract liability, which is shown above, primarily results from the difference between new lease bonus payments received and amortization of up-front lease bonus payments received in previous periods.
The amount of revenue recognized in the period that was included in the opening contract liability was
$0.3 million
. This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty agreement, which is generally five years. The difference between the opening and closing balances of the Company’s accounts receivable and contract liabilities results from the timing difference between the Company’s performance and the customer’s payment. Contracts with payments in arrears are recognized as receivables. The Company expects to recognize an additional
$0.7 million
in the remainder of 2018,
$0.5 million
in 2019,
$0.4 million
in both 2020 and 2021 and
$0.3 million
in 2022.
The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer.
Practical Expedients & Accounting Policy Elections
Remaining performance obligations - The Company has not disclosed the value of unsatisfied performance obligations for contracts with an original expected length of one year or more as the Company recognized revenue at the amount to which it has the right to invoice for goods delivered or services performed.
ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied. However, the guidance provides certain practical expedients that limit this requirement, including when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a series.
As discussed above, the Company allocates the variable consideration in its contract entirely to each specific performance obligation to which it relates. Therefore, any remaining variable consideration in the transaction price is allocated entirely to wholly unsatisfied performance obligations. As such, the Company has not disclosed the value of unsatisfied performance obligations pursuant to the practical expedient.
Other Accounting Standards Adopted in 2018:
In January 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which NACCO adopted on January 1, 2018. The adoption of this guidance resulted in a
$2.7 million
reclassification within the Unaudited Condensed Consolidated Statements of Changes in Equity and did not have a material effect on the Company’s financial position, results of operations, cash flows and related disclosures.
See Note 5
for further discussion.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which NACCO adopted on January 1, 2018. The adoption of this guidance resulted in a
$2.3 million
reclassification within the Unaudited Condensed Consolidated Statements of Changes in Equity and 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 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, or as of January 1, 2019 for NACCO. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company is currently in the process of evaluating its existing lease portfolio, including accumulating all of the information required to properly account for the leases under the new standard. Additionally, the Company is evaluating the need for a lease management system to assist in the accounting and additional changes to processes and internal controls to meet the standard’s reporting and disclosure requirements. While the Company is currently evaluating how and to what extent ASU 2016-02 will affect the Company's financial position, results of operations and related disclosures, it is not expected to have a material impact on liquidity or debt-covenant compliance.
NOTE 3—
Inventories
Inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
MARCH 31
2018
|
|
DECEMBER 31
2017
|
Coal
|
$
|
12,371
|
|
|
$
|
13,416
|
|
Mining supplies
|
17,744
|
|
|
16,599
|
|
Total inventories
|
$
|
30,115
|
|
|
$
|
30,015
|
|
NOTE 4—
Stockholders' Equity
Stock Repurchase Program:
On February 14, 2018, the Company's Board of Directors approved a stock repurchase program ("2018 Stock Repurchase Program") providing for the purchase of up to
$25 million
of the Company's outstanding Class A Common Stock through December 31, 2019. The timing and amount of any repurchases under the 2018 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, market conditions for the Company's Class A Common Stock and other legal and contractual restrictions. The 2018 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 2018 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 the
three months ended March 31, 2018
, the Company did not repurchase any shares of Class A Common Stock under the 2018 Stock Repurchase Program.
NOTE 5—
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
|
|
Date
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
March 31, 2018
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
9,086
|
|
|
$
|
9,086
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
41
|
|
|
—
|
|
|
41
|
|
|
—
|
|
|
|
$
|
9,127
|
|
|
$
|
9,086
|
|
|
$
|
41
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Equity securities
|
|
$
|
9,166
|
|
|
$
|
9,166
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swap agreements
|
|
42
|
|
|
—
|
|
|
42
|
|
|
—
|
|
|
|
$
|
9,208
|
|
|
$
|
9,166
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
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. In connection with Bellaire's normal permit renewal with the Pennsylvania Department of Environmental Protection ("DEP"), Bellaire established a
$5.0 million
mine water treatment trust (the "Mine Water Treatment Trust") to provide a financial assurance mechanism to assure the long-term treatment of post-mining discharges. Bellaire's Mine Water Treatment Trust invests in equity 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. The Mine Water Treatment Trust has an unrealized pre-tax gain of
$4.1 million
as of
March 31, 2018
.
The Company uses significant other observable inputs to value derivative instruments used to hedge interest rate risk; therefore, they are classified within Level 2 of the valuation hierarchy. The fair value for these contracts is determined based on current interest rates.
There were no transfers into or out of Levels 1, 2 or 3 during the
three months ended
March 31, 2018
and
2017
.
NOTE 6—
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 investment in the unconsolidated subsidiaries and related tax positions totaled
$18.7 million
and
$16.3 million
at
March 31, 2018
and
December 31, 2017
, respectively. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was
$5.9 million
and
$5.2 million
at
March 31, 2018
and
December 31, 2017
, respectively.
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 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 NACoal would be required to perform 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:
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
MARCH 31
|
|
2018
|
|
2017
|
Revenues
|
$
|
183,046
|
|
|
$
|
194,174
|
|
Gross profit
|
$
|
21,144
|
|
|
$
|
21,997
|
|
Income before income taxes
|
$
|
16,122
|
|
|
$
|
15,710
|
|
NOTE 7—
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 asbestos-related claims 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.
NOTE 8—
Business Segments
Two of the Company’s former segments, Hamilton Beach Brands and Kitchen Collection, were spun-off on September 29, 2017.
See Note 1
for a discussion of the Company's industry and the spin-off. There were no changes to the composition of the remaining segments, NACoal and NACCO and Other. 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:
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
MARCH 31
|
|
2018
|
|
2017
|
Revenues
|
|
|
|
NACoal
|
$
|
31,200
|
|
|
$
|
28,300
|
|
Total
|
$
|
31,200
|
|
|
$
|
28,300
|
|
|
|
|
|
Operating profit (loss)
|
|
|
|
|
|
NACoal
|
$
|
11,282
|
|
|
$
|
11,326
|
|
NACCO and Other
|
(1,561
|
)
|
|
(1,520
|
)
|
Total
|
$
|
9,721
|
|
|
$
|
9,806
|
|
NOTE 9—
Income Taxes
On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (“TCJA”), which significantly revised U.S. tax law. Subsequent to the enactment of the TCJA, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides a measurement period of up to one year after the enactment date for companies to finalize the recognition of the income tax effects of the TCJA. As a result of the TCJA and pursuant to SAB 118, the Company provisionally recorded a discrete net tax benefit of
$3.1 million
during the year ended December 31, 2017 and no adjustments were recorded to that provisional amount during the three months ended March 31, 2018. The ultimate impact of the TCJA may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions, additional regulatory guidance that may be issued, and the computation of state income taxes as there is uncertainty on conformity to the U.S. federal tax system following the TCJA.
NOTE 10—
Other Events and Transactions
HBBHC Spin-Off:
On September 29, 2017, the Company spun-off HBBHC, a former wholly owned subsidiary. To complete the spin-off, the Company distributed one share of HBBHC Class A common stock and one share of HBBHC Class B common stock to NACCO stockholders for each share of NACCO Class A common stock or Class B common stock owned. The Company accounted for the spin-off based on the historical carrying value of HBBHC.
In connection with the spin-off of HBBHC, the Company and HBBHC entered into a Transition Services Agreement ("TSA"). Under the terms of the TSA, the Company provides various services to HBBHC on a transitional basis, as needed, for varying periods after the spin-off date. None of the transition services are expected to continue beyond September 29, 2018. NACCO received fees of
$0.2 million
in the first three months of 2018, recorded as a reduction to selling, general and administrative expenses, and expects to receive net aggregate fees of approximately
$1.0 million
over the term of the TSA from HBBHC.
As a result of the spin-off, the financial position, results of operations and cash flows of HBBHC are reflected as discontinued operations through the date of the spin-off in the Unaudited Condensed Consolidated Financial Statements. Discontinued operations includes the following results of HBBHC for the three months ended March 31, 2017:
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
MARCH 31, 2017
|
HBBHC Operating Statement Data:
|
|
Revenues
|
$
|
140,282
|
|
Cost of goods sold
|
105,705
|
|
Gross profit
|
34,577
|
|
Operating expenses
|
37,015
|
|
Operating loss
|
(2,438
|
)
|
Interest expense
|
415
|
|
Other income, net
|
(682
|
)
|
Loss before income taxes
|
(2,171
|
)
|
Income tax benefit
|
(814
|
)
|
HBBHC net loss
|
$
|
(1,357
|
)
|
NACCO discontinued operations income tax expense adjustment
|
1,885
|
|
NACCO discontinued operations
|
$
|
(3,242
|
)
|