Unconsolidated Subsidiaries

Eight of NACoal's wholly owned subsidiaries, The Coteau Properties Company, The Falkirk Mining Company, The Sabine Mining Company, (collectively, the "project mining subsidiaries"), Demery Resources Company, LLC (“Demery”), Caddo Creek Resources Company, LLC (“Caddo Creek”), Camino Real Fuels, LLC (“Camino Real”), Liberty Fuels Company, LLC (“Liberty”) and NoDak Energy Services, LLC ("NoDak") each meet the definition of a variable interest entity. The contracts with the project mining subsidiaries' utility customers allow each mine to sell lignite coal at a price based on actual cost plus an agreed pre-tax profit per ton. The project mining subsidiaries are capitalized primarily with debt financing, which the utility customers have arranged and guaranteed. The obligations of the project mining subsidiaries are without recourse to NACCO and NACoal. Demery, Caddo Creek, Camino Real, Liberty and NoDak were formed during 2008 and 2009. Demery, Caddo Creek, Camino Real and Liberty (collectively with the project mining subsidiaries, the "unconsolidated mines") were formed to develop, construct and operate surface mines under long-term contracts. NoDak was formed to operate and maintain a coal processing facility. The contracts with the unconsolidated operations' customers allow for reimbursement at a price based on actual costs plus an agreed pre-tax profit per ton of coal sold or actual costs plus a management fee. The taxes resulting from the earnings of these eight entities are solely the responsibility of the Company. Although NACoal owns 100% of the equity and manages the daily operations of these entities, 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 pre-tax income from the seven unconsolidated mines is reported on the line “Earnings of unconsolidated mines” in the Unaudited Condensed 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. The pre-tax income from NoDak is reported on the line "Other" in the "Other (income) expense" section of the Unaudited Condensed Consolidated Statement of Operations, with the related income taxes included in the provision for income taxes. The investment in the eight unconsolidated operations and related tax position was $21.1 million and $21.6 million at June 30, 2011 and December 31, 2010, respectively, and is included on the line “Other Non-current Assets” in the Unaudited Condensed Consolidated Balance Sheets. The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $3.7 million and $5.0 million at June 30, 2011 and December 31, 2010, respectively.

Summarized financial information for the eight unconsolidated operations is as follows:



	THREE MONTHS ENDED				SIX MONTHS ENDED
	JUNE 30				JUNE 30
	2011		2010		2011		2010
Revenues	$	118.5	$	109.3	$	232.8	$	221.1
Gross profit	$	16.7	$	16.4	$	35.8	$	34.3
Income before income taxes	$	10.2	$	9.5	$	22.3	$	20.0
Income from continuing operations	$	7.6	$	7.1	$	16.9	$	15.2
Net income	$	7.6	$	7.1	$	16.9	$	15.2