What changed in this filing

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Item 1. Financial Statements

2022-08-03 compared with 2022-05-04 · 294 added, 204 removed, 691 unchanged (42% of the section changed)

17 unchanged sentences

Operating lease right-of-use assets 8,250 8,911

Investment in private company equity units 17,782 5,000

Other non-current assets 47,019 46,225

30 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2022 2021 2022 2021

(In thousands, except per share data)

3 unchanged sentences

Earnings of unconsolidated operations 14,622 13,542 29,214 28,884

Contract termination settlement 14,000 — 14,000 —

Operating expenses

1 unchanged sentence

Amortization of intangible assets 1,058 911 1,905 1,893

Gain on sale of assets

(Gain) loss on sale of assets

( 2,317 ) 68 ( 2,453 ) 27

5 unchanged sentences

Closed mine obligations 377 364 757 747

Gain on equity securities ( 518 ) ( 823 )

Loss (gain) on equity securities 1,878 ( 1,262 ) 1,360 ( 2,085 )

Other contract termination settlements ( 16,882 ) — ( 16,882 ) —

Other, net ( 1,064 ) ( 127 ) ( 1,294 ) ( 257 )

Income before income tax provision (benefit) 14,944 8,664

Income tax provision (benefit) 2,362 ( 297 )

( 15,390 ) ( 766 ) ( 15,390 ) ( 1,100 )

Income before income tax provision 45,073 9,436 60,017 18,100

Income tax provision 7,893 2,931 10,255 2,634

Net income $ 37,180 $ 6,505 $ 49,762 $ 15,466

8 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2022 2021 2022 2021

(In thousands)

Net income $ 37,180 $ 6,505 $ 49,762 $ 15,466

Reclassification of pension and postretirement adjustments into earnings, net of $ 35 and $ 43 tax benefit in the three months ended March 31, 2022 and March 31, 2021, respectively.

Reclassification of pension and postretirement adjustments into earnings, net of $ 32 and $ 67 tax benefit in the three and six months ended June 30, 2022, respectively, and net of $ 42 and $ 85 tax benefit in the three and six months ended June 30, 2021, respectively.

118 143 236 286

Total other comprehensive income 118 143 236 286

4 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED

SIX MONTHS ENDED

(In thousands)

Operating activities

Net cash used for operating activities $ ( 1,070 ) $ ( 910 )

Net cash provided by operating activities $ 40,481 $ 29,318

Investing activities

6 unchanged sentences

Reductions of long-term debt ( 1,400 ) ( 2,881 )

Net additions (reductions) to revolving credit agreements 2,000 ( 2,000 )

Net reductions to revolving credit agreements ( 4,000 ) ( 11,000 )

Cash dividends paid ( 2,966 ) ( 2,786 )

Net cash provided by (used for) financing activities 1,214 ( 3,561 )

Net cash used for financing activities ( 7,257 ) ( 16,667 )

Cash and cash equivalents

Total decrease for the period ( 4,385 ) ( 9,318 )

Total increase (decrease) for the period 11,108 ( 3,438 )

Balance at the beginning of the period 86,005 88,450

15 unchanged sentences

Balance, March 31, 2021 $ 5,583 $ 1,567 $ 11,818 $ 301,857 $ ( 11,456 ) $ 309,369

Stock-based compensation

12 — 1,110 — — 1,122

— — — 6,505 — 6,505

Cash dividends on Class A and Class B common stock:

$ 0.1975 per share

— — — ( 1,412 ) — ( 1,412 )

Reclassification adjustment to net income, net of tax

— — — — 143 143

Balance, June 30, 2021 $ 5,595 $ 1,567 $ 12,928 $ 306,950 $ ( 11,313 ) $ 315,727

Balance, January 1, 2022 $ 5,616 $ 1,567 $ 16,331 $ 336,778 $ ( 8,176 ) $ 352,116

7 unchanged sentences

Balance, March 31, 2022 $ 5,762 $ 1,566 $ 17,309 $ 347,915 $ ( 8,058 ) $ 364,494

Stock-based compensation

7 — 2,325 — — 2,332

— — — 37,180 — 37,180

Cash dividends on Class A and Class B common stock:

$ 0.2075 per share

— — — ( 1,521 ) — ( 1,521 )

Reclassification adjustment to net income, net of tax

— — — — 118 118

Balance, June 30, 2022 $ 5,769 $ 1,566 $ 19,634 $ 383,574 $ ( 7,940 ) $ 402,603

See notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2022

JUNE 30, 2022

(In thousands, except as noted and per share amounts)

7 unchanged sentences

The NAMining segment is a trusted mining partner for producers of aggregates, coal, lithium and other industrial minerals.

The Minerals Management segment acquires and promotes the development of mineral interests.

The Minerals Management segment, which includes the Catapult Mineral Partners business, acquires and promotes the development of mineral interests.

Mitigation Resources of North America ® ("Mitigation Resources") provides stream and wetland mitigation solutions.

12 unchanged sentences

Each mine is fully integrated with its customer's operations and is the exclusive supplier of coal to its customers' facilities.

During the three months ended March 31, 2022, the Coal Mining segment's operating coal mines were:

During the three and six months ended June 30, 2022, the Coal Mining segment's operating coal mines were:

The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), The Falkirk Mining Company (“Falkirk”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).

3 unchanged sentences

Certain coal supply contracts can be terminated early, which would result in a reduction to future earnings.

During the three months ended March 31, 2021, the Coal Mining segment's operating coal mines also included Bisti Fuels Company, LLC (“Bisti”).

On May 2, 2022, Great River Energy (“GRE”) completed the sale of Coal Creek Station and the adjacent high-voltage direct current transmission line to Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

As a result of the completion of the sale of Coal Creek Station, the existing Coal Sales Agreement, the existing Mortgage and Security Agreement and the existing Option Agreement between GRE and Falkirk were terminated.

The Company recognized a gain of $ 30.9 million within the accompanying Unaudited Condensed Consolidated Statements of Operations during the second quarter of 2022 as GRE paid NACoal $ 14.0 million in cash, as well as transferred ownership of an office building with an estimated fair value of $ 4.1 million, and conveyed membership units in a privately-held company involved in the ethanol industry with an estimated fair value of $ 12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE.

Prior to receiving the membership units from GRE, the Company held a $ 5.0 million investment in the same privately-held company carried at cost, less impairment.

Subsequent to the receipt of the additional membership units on May 2, 2022, the Company will prospectively account for the investment under the equity method of accounting.

Due to a lag in financial reporting of the privately-held company, the Company has not recorded its share of earnings or losses in the three or six months ended June 30, 2022.

On a go-forward basis, earnings or losses from this investment will be recorded on a one quarter lag.

See Note 5 for further discussion on fair value.

The new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy became effective upon the closing of the transaction.

Falkirk will continue to supply all coal requirements of Coal Creek Station.

Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs, including mine reclamation, and directly or indirectly providing all of the capital required to operate the mine.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with 2021 fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.

During the three and six months ended June 30, 2021, the Coal Mining segment's operating coal mines also included Bisti Fuels Company, LLC (“Bisti”).

Effective September 30, 2021, the contract mining agreement between Bisti and its customer, Navajo Transitional Energy Company ("NTEC"), was terminated.

9 unchanged sentences

Basin Electric is also considering other options for the Synfuels Plant if the transaction with Bakken does not close.

Basin Electric indicated that if it

decides to proceed with any changes that could reduce or eliminate the use of coal, the feedstock change is not expected to occur before 2027.

Falkirk operates the Falkirk Mine in North Dakota.

Falkirk is the sole supplier of lignite coal to the Coal Creek Station power plant pursuant to a contract under which Falkirk also supplies approximately 0.3 million tons of lignite coal per year to Spiritwood Station power plant.

Coal Creek Station and Spiritwood Station are owned by Great River Energy (“GRE”).

In 2020, GRE announced its intent to sell or retire Coal Creek Station and modify Spiritwood Station to be fueled by natural gas.

During 2021, GRE entered into an agreement to sell Coal Creek Station and the adjacent high-voltage direct current transmission line to Bismarck, North Dakota-based Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

On May 2, 2022, GRE completed the sale of the Coal Creek Station power plant and the adjacent high-voltage direct current transmission line to Rainbow Energy.

See Note 9 for further discussion of the transactions.

Sabine operates the Sabine Mine in Texas.

17 unchanged sentences

The mines that meet the definition of a VIE are referred to collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the NACCO consolidated U.S.

therefore, the Income tax provision (benefit) line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

therefore, the Income tax provision line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

See Note 6 for further information on the Unconsolidated Subsidiaries.

Falkirk meets the definition of a VIE.

The completion of the Rainbow Energy transaction results in a VIE reconsideration event.

While Falkirk meets the definition of a VIE, the completion of the Rainbow Energy transaction resulted in a VIE reconsideration event.

As the terms of the contract between Falkirk and Rainbow Energy are substantially the same as the terms of the contract between Falkirk and GRE, Falkirk will remain a VIE and Rainbow Energy is the primary beneficiary;

14 unchanged sentences

TVA’s power portfolio includes coal, nuclear, hydroelectric, natural gas and renewables.

The decision of

which power plants to dispatch is determined by TVA.

The decision of which power plants to dispatch is determined by TVA.

Reduction in dispatch of the Red Hills Power Plant will result in reduced earnings at MLMC.

5 unchanged sentences

materials handling and processing, product sales and distribution.

NAMining historically operated primarily at limestone quarries in Florida, but is focused on expanding outside of Florida, mining materials other than limestone and expanding the scope of mining operations provided to its customers.

NAMining historically operated primarily at limestone quarries in Florida, but is focused on continuing to expand outside of Florida, mining materials other than limestone and expanding the scope of mining operations provided to its customers.

NAMining utilizes both fixed price and management fee contract structures.

4 unchanged sentences

During 2021 and 2020, the Minerals Management segment acquired mineral interests, primarily in the Eagle Ford and Permian Basins in Texas.

During the first quarter of 2022, the Minerals Management segment had capital expenditures of $ 0.8 million, primarily for mineral interests in the New Mexico portion of the Permian Basin.

During the first six months of 2022, the Minerals Management segment had capital expenditures of $ 1.0 million, primarily for mineral interests in the New Mexico portion of the Permian Basin.

The Minerals Management segment intends to make future acquisitions of mineral and royalty interests that meet the Company’s acquisition criteria as part of its growth strategy.

14 unchanged sentences

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, 2022, the results of its operations, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2022 and 2021 have been included.

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 June 30, 2022, the results of its operations, comprehensive income, cash flows and changes in equity for the six months ended June 30, 2022 and 2021 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, 2021.

1 unchanged sentence

GAAP for complete financial statements.

Certain amounts in prior period Unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation.

Certain amounts in the prior period Unaudited Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation.

NOTE 2— Revenue Recognition

2 unchanged sentences

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.

Each mine has a contract with its respective customer that represents a contract under ASC 606.

For its consolidated entities, the Company’s performance obligations vary by contract and consist of the following:

15 unchanged sentences

The extent of progress towards completion is measured based on the ratio of costs incurred to date compared to total estimated costs at completion, and revenue is recorded proportionally based on an estimated profit margin.

The Minerals Management segment enters into contracts which grant the right to explore, develop, produce and sell minerals controlled by the Company.

The Minerals Management segment enters into contracts which grant third-party lessees the right to explore, develop, produce and sell minerals controlled by the Company.

These arrangements result in the transfer of mineral rights for a period of time;

1 unchanged sentence

The mineral rights revert back to the Company at the expiration of the contract.

Under these contracts, granting exclusive right, title, and interest in and to minerals, if any, is the performance obligation.

Under these contracts, granting exclusive right, title, and interest in and to minerals 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.

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 Company believes that the pricing provisions of royalty contracts are customary in the industry.

The Company believes that the provisions of royalty contracts are customary in the industry.

Up-front lease bonus payments represent the fixed portion of the transaction price and are recognized over the primary term of the contract, which is generally five years .

20 unchanged sentences

The difference between the Company’s estimates and the actual amounts received is recorded in the month that payment is received from the third-party lessee.

For the three months ended March 31, 2022, royalty income of $ 2.1 million was recognized for a settlement related to the Company’s ownership interest in certain mineral rights.

For the three months ended June 30, 2022, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial.

For the six months ended June 30, 2022, royalty income of $ 2.1 million was recognized for a settlement related to the Company’s ownership interest in certain mineral rights.

For the three and six months ended June 30, 2021, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial.

Disaggregation of Revenue

3 unchanged sentences

See Note 8 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2022 2021 2022 2021

Timing of Revenue Recognition

8 unchanged sentences

Balance, January 1, 2022 $ 25,667 $ 5,985 $ 4,082 $ 1,453

Balance, March 31, 2022 27,226 5,985 2,989 1,329

Balance, June 30, 2022 32,143 5,985 1,803 1,239

Increase (decrease) $ 6,476 $ — $ ( 2,279 ) $ ( 214 )

3 unchanged sentences

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 both of the three months ended March 31, 2022 and 2021 that was included in the opening contract liability was $ 0.2 million.

The amount of royalty revenue recognized in both of the three months ended June 30, 2022 and 2021 that was included in the opening contract liability was $ 0.3 million.

The amount of royalty revenue recognized in both of the six months ended June 30, 2022 and 2021 that was included in the opening contract liability was $ 0.5 million.

This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are generally five years .

The Company expects to recognize an additional $ 3.0 million in the remainder of 2022, $ 1.2 million in 2023, $ 0.1 million in 2024, and de minimis amounts in 2025 and 2026 related to the contract liability remaining at March 31, 2022.

The Company expects to recognize an additional $ 1.6 million in the remainder of 2022, $ 1.3 million in 2023, $ 0.1 million in 2024, and de minimis amounts in 2025 and 2026 related to the contract liability remaining at June 30, 2022.

The difference between the opening and closing balances of the Company’s contract balances results from the timing difference between the Company’s performance and the customer’s payment.

9 unchanged sentences

On November 10, 2021, the Company's Board of Directors approved a stock repurchase program ("2021 Stock Repurchase Program") providing for the purchase of up to $ 20.0 million of the Company’s outstanding Class A common stock through December 31, 2023.

The timing and amount of any repurchases under the 2021 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.

market conditions for the Company's Class A Common Stock and other legal and contractual restrictions.

The 2021 Stock Repurchase Program does not require the Company to acquire any specific number of shares and may be modified, suspended, extended or terminated by the Company without prior notice and may be executed through open market purchases, privately negotiated transactions or otherwise.

All or part of the repurchases under the 2021 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 restricted from doing so under applicable securities laws.

The Company has not repurchased any shares of common stock under the 2021 Stock Repurchase Program through March 31, 2022.

The Company has not repurchased any shares of common stock under the 2021 Stock Repurchase Program through June 30, 2022.

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:

4 unchanged sentences

Description Date (Level 1) (Level 2) (Level 3)

March 31, 2022

June 30, 2022

Equity securities $ 14,788 $ 14,788 $ — $ —

8 unchanged sentences

therefore, they are classified as Level 1 within the fair value hierarchy.

The Company recognized a loss of $ 0.7 million and a gain of $ 0.3 million during the three months ended March 31, 2022 and 2021, respectively, related to the Mine Water Treatment Trust.

The Company recognized a loss of $ 1.5 million and $ 2.1 million during the three and six months ended June 30, 2022, respectively, and a gain of $ 0.7 million and $ 1.0 million during the three and six months ended June 30, 2021, respectively, related to the Mine Water Treatment Trust.

Prior to 2021, the Company invested $ 2.0 million in equity securities of a public company with a diversified portfolio of royalty producing mineral interests.

1 unchanged sentence

therefore, it is classified as Level 1 within the fair value hierarchy.

The Company recognized a gain of $ 1.2 million and $ 0.5 million during the three months ended March 31, 2022 and 2021, respectively, related to the investment in these equity securities.

The gains and losses related to equity securities are reported on the line (Gain) loss on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

There were no transfers into or out of Levels 1, 2 or 3 during the three months ended March 31, 2022 and 2021.

The Company recognized a loss of $ 0.4 million and a gain of $ 0.8 million during the three and six months ended June 30, 2022, respectively, and a gain of $ 0.6 million and $ 1.1 million during the three and six months ended June 30, 2021, respectively, related to the investment in these equity securities.

The gains and losses related to equity securities are reported on the line Loss (gain) on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

As discussed in Note 1, the Company recorded the estimated fair value of an office building and membership units of a privately held company during the second quarter of 2022.

These fair value measurements were based on significant inputs not observable in the market and thus represent Level 3 measurements within the fair value measurement hierarchy.

Level 3 fair market values were determined using a variety of information, including estimated future cash flows and external appraisals, and considered both the income and market approaches.

The significant assumptions used in determining the fair value of the membership units are the estimated future cash flows and the discount rate applied to the estimated future cash flows.

The estimate of future cash flows is based on available historical information and forecasts provided by the privately held company that are inherently uncertain.

Management determined the appropriate discount rate based on the weighted average cost of capital ("WACC").

The WACC takes into account both the

after-tax cost of debt and cost of equity.

A major component of the cost of equity is the current risk-free rate on twenty-year U.S.

Treasury bonds as well as company specific risk and size premiums.

In determining the $ 4.1 million fair value of the office building, the Company engaged an independent real estate appraiser to appraise the property utilizing observed sales transactions for similar assets as well as consideration of an income approach.

Prior to receiving the membership units from GRE, the Company held a $ 5.0 million investment in the same privately-held company.

The Company previously elected to use the measurement alternative to fair value included in ASC 321, Investments – Equity Securities , that allows investments without readily determinable fair values to be carried at cost less impairment, if any, adjusted for observable price changes in orderly transactions for the identical or similar investments.

The Company determined that the receipt of the additional membership units does not represent an observable transaction as defined in ASC 321.

As such, the Company will add the fair value of the additional membership units of $ 12.8 million to the $ 5.0 million historical cost basis of the existing membership units, the total of which is the initial measurement of the Company’s equity method investment.

The office building is included in Property, plant and equipment, net and the investment in the privately-held company is included in Investment in private company equity units within the accompanying Unaudited Condensed Consolidated Balance Sheets.

There were no transfers into or out of Levels 1, 2 or 3 during the six months ended June 30, 2022 and 2021.

NOTE 6— Unconsolidated Subsidiaries

5 unchanged sentences

See Note 1 for a discussion of these entities.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 18.5 million and $ 19.1 million at March 31, 2022 and December 31, 2021, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 5.1 million and $ 7.6 million at March 31, 2022 and December 31, 2021, respectively.

Earnings of unconsolidated operations were $ 14.6 million and $ 15.3 million during the three months ended March 31, 2022 and 2021, respectively.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 15.4 million and $ 19.1 million at June 30, 2022 and December 31, 2021, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 4.9 million and $ 7.6 million at June 30, 2022 and December 31, 2021, respectively.

Earnings of unconsolidated operations were $ 14.6 million and $ 29.2 million during the three and six months ended June 30, 2022, respectively, and $ 13.5 million and $ 28.9 million during the three and six months ended June 30, 2021.

The contract mining agreement between Bisti and NTEC was terminated effective September 30, 2021.

12 unchanged sentences

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.

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.

14 unchanged sentences

The following tables present revenue, operating profit, depreciation expense and capital expenditures:

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2022 2021 2022 2021

Coal Mining $ 26,602 $ 20,689 $ 47,564 $ 42,631

11 unchanged sentences

Total $ 29,683 $ 8,670 $ 44,627 $ 17,000

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2022 2021 2022 2021

Expenditures for property, plant and equipment and acquisition of mineral interests

10 unchanged sentences

Total $ 6,488 $ 5,617 $ 12,615 $ 11,202

NOTE 9—Subsequent Events

As a result of the completion of the sale of Coal Creek Station on May 2, 2022, the existing Coal Sales Agreement, the existing Mortgage and Security Agreement and the existing Option Agreement between GRE and Falkirk were terminated.

GRE paid NACoal $ 14.0 million in cash, as well as transferred ownership of an office building located in Bismarck, North Dakota, and conveyed membership units in Midwest AgEnergy to NACoal as agreed to under the termination and release of claims agreement between Falkirk and GRE.

NACCO previously invested $ 5.0 million in Midwest AgEnergy, which operates two ethanol facilities in North Dakota.

The new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy became effective upon the closing of the transaction.

Falkirk will continue to supply all coal requirements of Coal Creek Station.

Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs and directly or indirectly providing all of the capital required to operate the mine.

The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

If Rainbow Energy terminates the CSA and closes Coal Creek Station before 2027, Falkirk will be entitled to an additional payment from GRE under the terms of the

termination and release of claims agreement.

The additional payment amount ranges from $ 8 million if the closure occurs before 2024 to $ 2 million if the closure occurs in 2026.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with current fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.

- Management's Discussion and Analysis of Financial Condition and Results of Operations

10 unchanged sentences

The NAMining segment is a trusted mining partner for producers of aggregates, coal, lithium and other industrial minerals.

The Minerals Management segment, which includes the Catapult Mineral Partners ("Catapult") business, acquires and promotes the development of mineral interests.

The Minerals Management segment, which includes the Catapult Mineral Partners business, acquires and promotes the development of mineral interests.

Mitigation Resources of North America ® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

12 unchanged sentences

Lignite coal is surface mined in North Dakota, Texas and Mississippi.

Each mine is fully integrated with its customer's operations and is the exclusive supplier of coal to its customers' facilities.

During the three months ended March 31, 2022, the Coal Mining segment's operating coal mines were:

Each mine is fully integrated with its customer's operations and is the exclusive supplier of coal to its customer's facilities.

During the three and six months ended June 30, 2022, the Coal Mining segment's operating coal mines were:

3 unchanged sentences

Certain coal supply contracts can be terminated early, which would result in a reduction to future earnings.

During the three months ended March 31, 2021, the Coal Mining segment's operating coal mines also included Bisti Fuels Company, LLC (“Bisti”).

The Company recognized a gain of $30.9 million within the accompanying Unaudited Condensed Consolidated Statements of Operations during the second quarter of 2022 as GRE paid NACoal $14.0 million in cash, as well as transferred ownership of an office building with an estimated fair value of $4.1 million, and conveyed membership units in a privately-held company involved in the ethanol industry with an estimated fair value of $12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE.

receiving the membership units from GRE, the Company held a $5.0 million investment in the same privately-held company carried at cost, less impairment.

Subsequent to the receipt of the additional membership units on May 2, 2022, the Company will prospectively account for the investment under the equity method of accounting.

Due to a lag in financial reporting of the privately-held company, the Company has not recorded its share of earnings or losses in the three or six months ended June 30, 2022.

On a go-forward basis, earnings or losses from this investment will be recorded on a one quarter lag.

See Note 5 for further discussion on fair value.

The new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy became effective upon the closing of the transaction.

Falkirk will continue to supply all coal requirements of Coal Creek Station.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with 2021 fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.

During the three and six months ended June 30, 2021, the Coal Mining segment's operating coal mines also included Bisti Fuels Company, LLC (“Bisti”).

Effective September 30, 2021, the contract mining agreement between Bisti and its customer, Navajo Transitional Energy Company ("NTEC"), was terminated.

2 unchanged sentences

Basin Electric utilizes the coal at the Great Plains Synfuels Plant (the “Synfuels Plant”), Antelope Valley Station and Leland Olds Station.

The Synfuels Plant is a coal gasification plant, owned by Dakota Gasification Company (“Dakota Gas’), a subsidiary of Basin Electric, that manufactures synthetic natural gas and produces fertilizers,

solvents, phenol, carbon dioxide, and other chemical products for sale.

During 2020, Basin Electric informed Coteau that it is considering changes that may result in modifications to its Synfuels Plant that could potentially reduce or eliminate coal requirements at the Synfuels Plant.

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Basin Electric is also considering other options for the Synfuels Plant if the transaction with Bakken does not close.

Basin Electric indicated that if it decides to proceed with any changes that could reduce or eliminate the use of coal, the feedstock change is not expected to occur before 2027.

Falkirk operates the Falkirk Mine in North Dakota.

Coal Creek Station and Spiritwood Station are owned by Great River Energy (“GRE”).

In 2020, GRE announced its intent to sell or retire Coal Creek Station and modify Spiritwood Station to be fueled by natural gas.

On May 2, 2022, GRE completed the sale of the Coal Creek Station power plant and the adjacent high-voltage direct current transmission line to Rainbow Energy.

See Note 9 for further discussion of the transactions.

Sabine operates the Sabine Mine in Texas.

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See Note 6 for further discussion of Coyote Creek's guarantees.

Coteau, Coyote Creek, Falkirk and Sabine each meet the definition of a VIE.

Coteau, Coyote Creek, Falkirk and Sabine each meet the definition of a variable interest entity ("VIE").

In each case, NACCO is not the primary beneficiary of the VIE as it does not exercise financial control;

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therefore, the income tax expense line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

therefore, the Income tax provision line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

See Note 6 for further information on the Unconsolidated Subsidiaries.

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Under all of the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities.

Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities.

certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities.

To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those services in addition to receiving reimbursement from customers for costs incurred.

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materials handling and processing, product sales and distribution.

NAMining utilizes both fixed price and management fee contract structures.

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During 2021 and 2020, the Minerals Management segment acquired mineral interests, primarily in the Eagle Ford and Permian Basins in Texas.

During the first quarter of 2022, the Minerals Management segment had capital expenditures of $0.8 million, primarily for mineral interests in the New Mexico portion of the Permian Basin.

During the first six months of 2022, the Minerals Management segment had capital expenditures of $1.0 million, primarily for mineral interests in the New Mexico portion of the Permian Basin.

The Minerals Management segment intends to make future acquisitions of mineral and royalty interests that meet the Company’s acquisition criteria as part of its growth strategy.

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CONSOLIDATED FINANCIAL SUMMARY

The results of operations for NACCO were as follows for the three months ended March 31:

The results of operations for NACCO were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Coal Mining $ 26,602 $ 20,689 $ 47,564 $ 42,631

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Closed mine obligations 377 364 757 747

Gain on equity securities (518) (823)

Loss (gain) on equity securities 1,878 (1,262) 1,360 (2,085)

Other contract termination settlements (16,882) — (16,882) —

Other, net (1,064) (127) (1,294) (257)

Other expense (income), net — (334)

Income before income tax provision (benefit) 14,944 8,664

Income tax provision (benefit) 2,362 (297)

Other income, net (15,390) (766) (15,390) (1,100)

Income before income tax provision 45,073 9,436 60,017 18,100

Income tax provision 7,893 2,931 10,255 2,634

Net income $ 37,180 $ 6,505 $ 49,762 $ 15,466

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The components of the change in revenues and operating profit are discussed below in "Segment Results."

First Quarter of 2022 Compared with First Quarter of 2021

Other expense (income), net

Gain on equity securities represents changes in the market price of invested assets reported at fair value.

The change in the first three months of 2022 compared with the 2021 period was due to fluctuations in the market prices of the underlying assets.

See Note 5 to the Unaudited Condensed Consolidated Financial Statements for further discussion of equity securities.

The Company recorded income tax expense of $2.4 million on income before income tax of $14.9 million, or 15.8%, for the first quarter of 2022 compared with an income tax benefit of $0.3 million on income before income tax of $8.7 million, or (3.4%) for the first quarter of 2021.

Second Quarter of 2022 Compared with Second Quarter of 2021, and First Six Months of 2022 Compared with First Six Months of 2021

Other income, net

During the second quarter of 2022, GRE transferred ownership of an office building with an estimated fair value of $4.1 million and conveyed membership units in a privately-held company with an estimated fair value of $12.8 million, as agreed to under the termination and release of claims agreement between Falkirk and GRE.

The Company recognized a gain of $16.9 million on

the "Other contract termination settlements" line within the accompanying Unaudited Condensed Consolidated Statements of Operations during the second quarter of 2022 as a result of the transactions with GRE.

Loss (gain) on equity securities represents changes in the market price of invested assets reported at fair value.

The change in the second quarter of 2022 and the first six months of 2022 compared with the respective 2021 periods was due to fluctuations in the market prices of the exchange-traded equity securities.

During the second quarter of 2022, the Company’s investment held at cost, less impairment, made a distribution to its owners, including the Company.

As a result, the Company recognized a gain of $0.7 million, included in Other, net within the accompanying Unaudited Condensed Consolidated Statements of Operations in the three and six months ended June 30, 2022.

See Note 5 to the Unaudited Condensed Consolidated Financial Statements for further discussion of the Other contract termination settlements and equity securities.

The Company evaluates and updates its estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws.

Consequently, based upon the mix and timing of actual earnings compared to projections of earnings between entities that benefit from percentage depletion and those that do not, the effective tax rate may vary quarterly.

The estimated annual effective income tax rate differs from the U.S.

federal statutory rate due, in part, to the benefit from percentage depletion.

Changes in the estimated annual effective tax rate result in a cumulative adjustment.

The effective income tax rate for 2022 reflects the impact of a higher forecast of full-year pre-tax income in 2022 compared with the prior year.

The increase in the effective income tax rate for the six months ended June 30, 2022 compared with the 2021 period reflects the impact of a higher forecast of full-year pre-tax income in 2022 compared with the prior year, including the $30.9 million gain recognized as a result of the settlement under the termination and release of claims agreement with GRE.

The enactment of tax reform legislation could adversely impact the Company’s financial position and results of operations.

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LIQUIDITY AND CAPITAL RESOURCES OF NACCO

The following tables detail NACCO's changes in cash flow for the three months ended March 31:

The following tables detail NACCO's changes in cash flow for the six months ended June 30:

2022 2021 Change

Operating activities:

Net cash used for operating activities $ (1,070) $ (910) $ (160)

Net cash provided by operating activities $ 40,481 $ 29,318 $ 11,163

Investing activities:

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Cash flow before financing activities $ 18,365 $ 13,229 $ 5,136

The $0.2 million change in net cash used for operating activities was primarily due to net unfavorable changes in non-current assets and working capital, almost entirely offset by an increase in earnings.

The $11.2 million change in net cash provided by operating activities was primarily due to a $34.3 million increase in net income that includes a pre-tax gain of $30.9 million related to the termination and release of claims agreement between Falkirk and GRE.

The increase in net income was partially offset by $19.4 million of non-cash items recognized during the first six months of 2022, including the gain related to the receipt of membership units in a privately-held company and the transfer of the office building, as well as a $2.5 million gain on a sale of fixed assets.

2022 2021 Change

Financing activities:

Net borrowings (reductions) to long-term debt and revolving credit agreement $ 2,659 $ (2,187) $ 4,846

Net reductions to long-term debt and revolving credit agreement $ (4,291) $ (13,881) $ 9,590

Cash dividends paid (2,966) (2,786) (180)

Net cash provided by (used for) financing activities $ 1,214 $ (3,561) $ 4,775

The change in net cash provided by (used for) financing activities was primarily due to borrowings during the first three months of 2022 compared with repayments during the first three months of 2021.

Net cash used for financing activities $ (7,257) $ (16,667) $ 9,410

The change in net cash used for financing activities was primarily due to fewer repayments as a result of a reduction in borrowings under the Company’s revolving line of credit during the first six months of 2022 compared with the first six months of 2021.

Financing Activities

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NACoal has a secured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in November 2025.

Borrowings outstanding under the NACoal Facility were $6.0 million at March 31, 2022.

At March 31, 2022, the excess availability under the NACoal Facility was $113.9 million, which reflects a reduction for outstanding letters of credit of $30.1 million.

There were no borrowings outstanding under the NACoal Facility at June 30, 2022.

At June 30, 2022, the excess availability under the NACoal Facility was $119.9 million, which reflects a reduction for outstanding letters of credit of $30.1 million.

NACCO has not guaranteed any borrowings of NACoal.

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Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved.

The applicable margins, effective March 31, 2022, for base rate and LIBOR loans were 1.25% and 2.25%, respectively.

The applicable margins, effective June 30, 2022, for base rate and LIBOR loans were 1.25% and 2.25%, 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 March 31, 2022.

During the three months ended March 31, 2022, the average borrowing under the NACoal Facility was $5.6 million and the weighted-average annual interest rate was 2.6%.

The commitment fee was 0.35% on the unused commitment at June 30, 2022.

During the three and six months ended June 30, 2022, the average borrowing under the NACoal Facility was $2.2 million and $3.9 million, respectively, and the weighted-average annual interest rate was 2.5% in both periods.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum net debt to EBITDA ratio of 2.75 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00.

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EBITDA ratio of 1.50 to 1.00, or if greater than 1.50 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million.

At March 31, 2022, NACoal was in compliance with all financial covenants in the NACoal Facility.

At June 30, 2022, NACoal was in compliance with all financial covenants in the NACoal Facility.

The obligations under the NACoal Facility are guaranteed by certain of NACoal's direct and indirect, existing and future

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Expenditures for property, plant and equipment and mineral interests

Expenditures for property, plant and equipment and mineral interests were $4.6 million during the first three months of 2022.

Expenditures for property, plant and equipment and mineral interests were $24.9 million during the first six months of 2022.

Planned expenditures for the remainder of 2022 are expected to be approximately $15 million in the Coal Mining segment, $5 million in the NAMining segment, $12 million in the Minerals Management segment and $4 million at Mitigation Resources.

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Debt to total capitalization 4% 6% (2)%

The increase in other net tangible assets at March 31, 2022 compared with December 31, 2021 was primarily due to:

• An increase in Prepaid insurance due to timing;

• A decrease in Accrued payroll for payments made during the first quarter of 2022 under incentive compensation plans;

• An increase in Property, plant and equipment.

The increase in other net tangible assets at June 30, 2022 compared with December 31, 2021 was primarily due to receipt of the membership units in a privately-held company and office building that were transferred from GRE with a fair value of $12.8 million and $4.1 million, respectively.

Additionally, the increase is due to:

• An increase in Property, plant and equipment due in part to land purchased by Mitigation Resources;

• An increase in Trade accounts receivable due to higher revenue in the second quarter of 2022 compared with the fourth quarter of 2021.

Contractual Obligations, Contingent Liabilities and Commitments

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FINANCIAL REVIEW

Tons of coal delivered by the Coal Mining segment were as follows for the three months ended March 31:

Tons of coal delivered by the Coal Mining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Unconsolidated operations 5,534 6,017 11,851 13,527

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Total tons delivered 6,449 6,792 13,498 15,137

The results of operations for the Coal Mining segment were as follows for the three months ended March 31:

The results of operations for the Coal Mining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Revenues $ 26,602 $ 20,689 $ 47,564 $ 42,631

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13,460 12,176 26,786 26,338

Contract termination settlement 14,000 — 14,000 —

Selling, general and administrative expenses 7,192 6,278 14,431 13,192

Amortization of intangible assets 1,058 911 1,905 1,893

Gain on sale of assets — (39)

(Gain) loss on sale of assets (1) 6 (1) (33)

Operating profit $ 21,175 $ 7,627 $ 28,527 $ 15,784

(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Revenues decreased 4.5% in the first quarter of 2022 compared with the first quarter of 2021 primarily due to a reduction in tons delivered at MLMC that was only partially offset by an increase in the per ton sales price at MLMC.

The following table identifies the components of change in operating profit for the first quarter of 2022 compared with the first quarter of 2021:

Second Quarter of 2022 Compared with Second Quarter of 2021

Revenues increased 28.6% in the second quarter of 2022 compared with the second quarter of 2021 due to an increase in tons delivered as a result of increased customer requirements and a higher per ton sales price at MLMC.

The following table identifies the components of change in operating profit for the second quarter of 2022 compared with the second quarter of 2021:

Operating Profit

Increase (decrease) from:

Contract termination settlement 14,000

Earnings of unconsolidated operations 1,284

Selling, general and administrative expenses (325)

Gain on sale of assets 7

Selling, general and administrative expenses (914)

Gross profit (682)

Amortization of intangibles (147)

Operating profit decreased $0.8 million in the first quarter of 2022 compared with the first quarter of 2021 primarily due to a decrease in earnings of unconsolidated operations and an increase in selling, general and administrative expenses, partially offset by an increase in gross profit.

The decrease in earnings of unconsolidated operations was primarily due to the Bisti contract termination as of September 30, 2021, the reduction in fees earned at Liberty Fuels Company, LLC as the scope of final reclamation activities declined and a decrease in customer demand at Sabine.

These decreases were partially offset by contractual price escalation at Coteau.

The increase in selling, general and administrative expenses was primarily due to higher professional service expenses partially offset by a decrease in employee-related costs.

Gross profit increased in the first quarter of 2022 compared with the first quarter of 2021 as the 2022 period included a refund of certain costs associated with the termination of the Camino Real Fuels, LLC contract mining agreement.

2022 $ 21,175

Operating profit increased $13.5 million in the second quarter of 2022 compared with the second quarter of 2021 due to the $14.0 million contract termination settlement from GRE recognized during the second quarter of 2022.

Excluding the $14.0 million from GRE, operating profit decreased $0.5 million mainly due to an increase in selling, general and administrative expenses and a decrease in gross profit, partially offset by an increase in the earnings of unconsolidated operations.

The increase in selling, general and administrative expenses was primarily due to higher employee-related costs.

The decrease in gross profit was primarily due to an increase in the cost per ton delivered at MLMC, due in part to an increase in the cost of diesel fuel.

The increase in earnings of unconsolidated operations was primarily due to contractual price escalation and an increase in customer requirements at Coteau as well as higher customer requirements at Sabine.

These increases were partially offset by a reduction in earnings as a result of the Bisti contract termination as of September 30, 2021, reduced customer demand at Falkirk and Coyote Creek and a reduction in the per ton management fee at Falkirk.

First Six Months of 2022 Compared with First Six Months of 2021

Revenues increased 11.6% in the first six months of 2022 compared with the first six months of 2021 due to a higher per ton sales price and an increase in tons delivered at MLMC.

The following table identifies the components of change in operating profit for the first six months of 2022 compared with the first six months of 2021:

Operating Profit

2021 $ 15,784

Increase (decrease) from:

Contract termination settlement 14,000

Earnings of unconsolidated operations 448

Selling, general and administrative expenses (1,239)

Gross profit (422)

Gain on sale of assets (32)

Amortization of intangibles (12)

2022 $ 28,527

Operating profit increased $12.7 million in the first six months of 2022 compared with the first six months of 2021 due to the $14.0 million contract termination settlement from GRE recognized during the second quarter of 2022.

Excluding the $14.0 million from GRE, operating profit decreased $1.3 million primarily due to an increase in selling, general and administrative expenses mainly due to an increase in employee-related costs and higher professional service expenses.

In addition, an increase in earnings of unconsolidated operations was primarily due to contractual price escalation and an increase in customer requirements at Coteau, partially offset by a reduction in earnings from the Bisti contract termination as of September 30, 2021.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

Tons delivered by the NAMining segment were as follows for the three months ended March 31:

Tons delivered by the NAMining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Unconsolidated operations 2,280 2,734 4,809 5,003

Consolidated operations 11,093 10,836 22,526 21,242

Total tons delivered 13,373 13,570 27,335 26,245

The results of operations for the NAMining segment were as follows for the three months ended March 31:

The results of operations for the NAMining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Total revenues $ 22,814 $ 19,860 $ 44,218 $ 37,799

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Earnings of unconsolidated operations (a)

1,162 1,366 2,428 2,546

Selling, general and administrative expenses 2,056 1,651 3,810 3,138

Gain on sale of assets (5) (2)

Loss on sale of assets 80 62 75 60

Operating profit $ 1,257 $ 1,698 $ 2,528 $ 2,355

(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Total revenues increased 19.3% in the first quarter of 2022 compared with the first quarter of 2021 primarily due to an increase in customer demand and tons delivered as well as an increase in revenue related to reclamation at Caddo Creek.

The following table identifies the components of change in operating profit for the first quarter of 2022 compared with the first quarter of 2021:

Second Quarter of 2022 Compared with Second Quarter of 2021

Total revenues increased 14.9% in the second quarter of 2022 compared with the second quarter of 2021 primarily due to an increase in customer requirements and tons delivered at the consolidated operations as well as an increase in reimbursable costs, which have an offsetting amount in cost of sales and have no impact on operating profit.

The following table identifies the components of change in operating profit for the second quarter of 2022 compared with the second quarter of 2021:

Operating Profit

Increase (decrease) from:

Gross profit 792

Earnings of unconsolidated operations 86

Gain on sale of assets 3

Selling, general and administrative expenses (405)

Operating profit increased $0.6 million in the first quarter of 2022 compared with the first quarter of 2021 primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses.

The increase in gross profit was primarily attributable to the earnings associated with the reclamation contract at Caddo Creek, partially offset by a

decrease in gross profit from the active operations primarily due to an increase in employee-related costs.

Earnings of unconsolidated operations (204)

Loss on sale of assets (18)

Gross profit 186

Operating profit decreased $0.4 million in the second quarter of 2022 compared with the second quarter of 2021 primarily due to an increase in selling, general and administrative expenses.

The increase in selling, general and administrative expenses was mainly due to higher employee-related costs.

First Six Months of 2022 Compared with First Six Months of 2021

Total revenues increased 17.0% in the first six months of 2022 compared with the first six months of 2021 primarily due to an increase in customer requirements and tons delivered at the consolidated operations, as well as an increase in revenue related to reclamation at Caddo Creek.

The following table identifies the components of change in operating profit for the first six months of 2022 compared with the first six months of 2021:

Operating Profit

Increase (decrease) from:

Gross profit 978

Selling, general and administrative expenses (672)

Earnings of unconsolidated operations (118)

Loss on sale of assets (15)

Operating profit increased $0.2 million in the first six months of 2022 compared with the first six months of 2021 primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses.

The increase in gross profit was primarily attributable to the earnings associated with the reclamation contract at Caddo Creek, partially offset by a decrease in gross profit from the active operations mainly due to an increase in employee-related costs.

The increase in selling, general and administrative expenses was primarily due to higher employee-related costs.

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

The results of operations for the Minerals Management segment were as follows for the three months ended March 31:

The results of operations for the Minerals Management segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Revenues $ 11,962 $ 5,608 $ 24,716 $ 11,108

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Operating profit $ 13,073 $ 4,173 $ 24,701 $ 8,408

Revenues and operating profit increased significantly in the first quarter of 2022 compared with the first quarter of 2021 primarily due to favorable changes in natural gas and oil prices, as well as $2.1 million of settlement income recognized during the first quarter of 2022.

Revenues and operating profit increased significantly in the three and six months ended June 30, 2022 compared with the respective 2021 periods primarily due to favorable changes in natural gas and oil prices and $2.1 million of settlement income recognized during the first quarter of 2022.

The settlement relates to the Company’s ownership interest in certain mineral rights.

During the first quarter of 2022, the oil and natural gas industry experienced continued improvement in commodity prices compared to the first quarter of 2021, primarily due to:

In addition, operating profit increased due to a $2.4 million gain on the sale of land related to legacy operations during the second quarter of 2022.

During the three and six months ended June 30, 2022, the oil and natural gas industry experienced continued improvement in commodity prices compared with the respective 2021 periods, primarily due to:

• Higher demand as the impact from COVID-19 abates;

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Oil and natural gas prices have been historically volatile and may continue to be volatile in the future.

The table below demonstrates such volatility with the average price as reported by the United States Energy Information Administration for the three months ended March 31:

The table below demonstrates such volatility with the average price as reported by the United States Energy Information Administration for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

West Texas Intermediate Average Crude Oil Price $ 108.72 $ 66.09 $ 101.59 $ 61.94

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FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the three months ended March 31:

Unallocated Items and Eliminations were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2022 2021 2022 2021

Operating loss $ (5,822) $ (4,828) $ (11,129) (9,547)

The operating loss increased $0.6 million in the first quarter of 2022 compared with the first quarter of 2021 primarily due to higher employee-related costs and business development activities.

The operating loss increased $1.0 million and $1.6 million in the three and six months ended June 30, 2022, respectively, compared with the respective 2021 periods primarily due to higher employee-related costs.

NACCO Industries, Inc.

Coal Mining Outlook - 2022

On May 2, 2022, GRE completed the sale of the Coal Creek Station power plant and the adjacent high-voltage direct current transmission line to Rainbow Energy and its affiliates.

As a result of the sale, the existing agreements between GRE and Falkirk terminated and GRE paid the Company $14.0 million, transferred ownership of an office building and conveyed membership units in Midwest AgEnergy to NACCO.

The new CSA between Falkirk and Rainbow Energy became effective on May 1, 2022.

Falkirk will continue supplying all coal requirements of Coal Creek Station and will be paid a management fee per ton of coal delivered for operating the mine.

Rainbow Energy is responsible for funding all mine operating costs and directly or indirectly

providing all of the capital required to operate the mine.

The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

Coal Mining operating profit in 2022 is expected to decrease significantly compared with 2021, both including and excluding the contract termination fees.

Coal Mining operating profit in both the second half and for the full year of 2022 is expected to decrease significantly compared with the respective 2021 periods, both including and excluding the contract termination payments received in 2022 and 2021.

The expected reduction in operating profit is primarily the result of reduced earnings at both consolidated and unconsolidated Coal Mining operations as well as an anticipated increase in operating expenses.

The increase in operating expenses is primarily due to expected higher outside services and professional fees.

Results at the consolidated mining operations are expected to decrease significantly in 2022 from 2021 primarily due to expected substantially lower earnings at MLMC driven by an anticipated reduction in customer demand, predominantly in the second half of 2022, from higher than average levels in 2021.

Lower customer demand, expected cost inflation in 2022 on diesel fuel, repairs and supplies, and higher depreciation expense related to recent capital expenditures to develop a new mine area are expected to contribute to an increase in the cost per ton in 2022.

The increase in operating expenses is primarily due to expected higher employee-related costs, professional fees and outside services.

Results at the consolidated mining operations are expected to decrease significantly in the second half of 2022 from the comparable 2021 period and the first half of 2022.

This expected decrease is primarily due to an expected substantial decline in earnings at MLMC driven by an anticipated reduction in customer demand from higher than average levels in the second half of the prior year.

Lower customer demand, expected cost inflation in the latter half of 2022 on diesel fuel, repairs and supplies, and higher depreciation expense related to recent capital expenditures to develop a new mine area are expected to contribute to an increase in the cost per ton in the second half of 2022.

In general, cost per ton delivered is lowest when the power plant requires a consistently high level of coal deliveries, primarily because costs are spread over more tons.

The reduction in earnings at the unconsolidated Coal Mining operations is expected to be driven by the termination of the Bisti contract as of September 30, 2021 and lower earnings at Falkirk, primarily in the second half of 2022 compared with the second half of 2021.

Falkirk has agreed to a reduction in the current per ton management fee from May 1, 2022 through May 31, 2024.

After May 31, 2024, Falkirk's per ton management fee increases to a higher base in line with current fee levels, and thereafter adjusts annually according to an index which tracks a broad measure of U.S.

Segment EBITDA, which excludes the termination payments of $10.3 million from Bisti's customer in 2021 and the $14 million contract termination fee from GRE in 2022, is expected to decrease significantly in 2022 from 2021 primarily as a result of the forecasted reduction in operating profit partially offset by an increase in depreciation, depletion and amortization expense.

As a result of the anticipated increase in cost per ton, the 2022 full-year results are expected to be substantially lower than the 2021 full year.

The anticipated reduction in earnings at the unconsolidated Coal Mining operations for the second half of and full-year 2022, compared with the respective prior year periods, is expected to be driven primarily by the reduction in the per ton management fee at Falkirk from May 1, 2022 through May 31, 2024, as well as the termination of Bisti's contract as of September 30, 2021.

These decreases are expected to be partly offset by higher earnings at Coteau.

Segment Adjusted EBITDA, which excludes the contract termination settlement payments of $10.3 million from Bisti's customer in 2021 and $14.0 million from GRE in 2022, is expected to decrease significantly in 2022 from 2021 primarily as a result of the forecasted reduction in operating profit partially offset by a higher add back of depreciation, depletion and amortization expense which is expected to increase in 2022.

The increase in depreciation, depletion and amortization expense is primarily due to higher capital expenditures at MLMC as a result of the development of a new mine area.

Capital expenditures are expected to be approximately $21 million in 2022.

Capital expenditures are expected to be approximately $15 million in the second half of 2022 and approximately $23 million for the full year.

The elevated levels of capital expenditures from 2019 through 2022 relate to the necessary development of a new mine area at MLMC, which will allow continued coal deliveries through the end of the contract.

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Sustained higher natural gas prices could continue to result in increased demand for coal.

Changes to expectations for customer power plant dispatch could affect the Company’s outlook for 2022 and over the longer term.

Changes to expectations for customer power plant dispatch could affect the

Company’s outlook for 2022 and over the longer term.

The owner of the power plant served by the Company's Sabine Mine in Texas intends to retire the power plant in the first quarter of 2023, at which time Sabine expects to begin final reclamation.

Funding for mine reclamation is the responsibility of the customer.

Coteau operates the Freedom Mine in North Dakota.

All coal production from the Freedom Mine is delivered to Basin Electric.

Basin Electric utilizes the coal at the Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station.

The Synfuels Plant is a coal gasification plant owned by Dakota Gas that manufactures synthetic natural gas and produces fertilizers, solvents, phenol, carbon dioxide and other chemical products for sale.

In August 2021, Basin Electric announced that it signed a non-binding term sheet which contemplates the sale of the assets of Dakota Gas.

The closing is subject to the satisfaction of specified conditions.

As part of the announcement, Basin Electric indicated that the Synfuels Plant will continue existing operations through 2026.

Basin Electric is also considering other options for the Synfuels Plant if the transaction with the potential buyer does not close.

NAMining Outlook

In 2022, NAMining expects full-year operating profit to increase over 2021, primarily in the fourth quarter of 2022, due to an expected increase in customer requirements and contributions from contracts executed during 2021.

Segment EBITDA for 2022 is expected to increase significantly compared with the prior year as a result of the improvement in operating profit and an increase in depreciation expense.

During 2021, NAMining expanded its footprint, including into new geographies, by entering into new contract mining services agreements at quarries in Florida, Indiana, Texas and Arkansas.

During the first quarter of 2022, NAMining agreed to

commission a new dragline at an existing quarry in Florida to secure a contract extension through 2027.

This dragline will supplement an existing dragline at this operation, resulting in an expected increase in deliveries and income over the next five years at the quarry.

NAMining expects operating profit to increase in both the second half of 2022 and for the full year over the respective 2021 periods.

The increase in the second half is primarily due to improved fourth quarter results, principally from a shift in mix of tons delivered to operations with higher-margin contracts, partially offset by an anticipated increase in operating expenses.

Segment Adjusted EBITDA for 2022 is expected to increase significantly compared with the prior year as a result of the improvement in operating profit from higher reclamation income at Caddo Creek in the first half of 2022 and the add back of higher depreciation expense.

During the first quarter of 2022, NAMining agreed to commission a new dragline at an existing quarry in Florida to secure a contract extension through 2027.

This dragline will supplement an existing dragline, resulting in an expected increase in deliveries and income over the next five years at this quarry.

NAMining continues to have a substantial pipeline of potential new projects and is pursuing a number of growth initiatives that, if successful, would be accretive to future earnings.

In 2019, NAMining's subsidiary, Sawtooth Mining, LLC, entered into a mining services agreement to serve as the exclusive contract miner for the Thacker Pass lithium project in northern Nevada, owned by Lithium Nevada Corp., a subsidiary of Lithium Americas Corp.

In 2019, Sawtooth Mining, LLC, entered into a mining services agreement to serve as the exclusive contract miner for the Thacker Pass lithium project in northern Nevada, owned by Lithium Nevada Corp., a subsidiary of Lithium Americas Corp.

Lithium Americas owns the lithium reserves at Thacker Pass and will be responsible for the processing and sale of the lithium produced.

In April 2022, Lithium Americas provided an update on the Thacker Pass project, which noted that all key state-level permits had been issued for Thacker Pass and early-works construction, which includes site access and preparation, is expected to commence in 2022.

In July 2022, Lithium Americas provided an update on the Thacker Pass project, which noted that all key state-level permits had been issued for Thacker Pass and feasibility study results are expected in the second half of 2022.

At maturity, this management fee contract is expected to deliver fee income similar to a mid-sized management fee coal mine.

In 2022, capital expenditures are expected to be approximately $28 million primarily for the acquisition, relocation and refurbishment of draglines, as well as the acquisition of other mining equipment to support the continued expansion of contract-mining services, including the acquisition of equipment to support the Thacker Pass lithium project.

The cost of mining equipment related to Thacker Pass will be reimbursed by the customer over a seven-year period from the equipment acquisition date.

NAMining previously forecasted capital expenditures of $28 million for 2022.

NAMining now expects full-year capital expenditures to be $13 million, with approximately $5 million expended in the second half of 2022 primarily for the acquisition, relocation and refurbishment of draglines, as well as the acquisition of other mining equipment to support the continued expansion of contract-mining services.

The reduction in capital expenditures from the previous forecast is due to a change in the timing of the acquisition of equipment to support the Thacker Pass lithium project from 2022 to 2023.

Minerals Management Outlook

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas, oil, natural gas liquids and coal, extracted primarily by third parties.

Operating profit and Segment EBITDA in 2022 are expected to increase significantly over 2021 primarily driven by current expectations for natural gas and oil prices for the remainder of 2022, partly offset by an anticipated reduction in production.

As a result of substantially higher oil and natural gas prices in the first half of 2022 compared with the respective prior year period, the Company expects a significant increase in operating profit in the first half of 2022.

This increase is anticipated to be partly offset by a modest decrease in the second half of 2022 as increases in oil and gas prices are expected to moderate and as a result of the absence of $3.3 million of settlement income recognized in the third quarter of 2021.

Excluding settlement income of $3.3 million recognized in the 2021 third quarter, operating profit and Segment Adjusted EBITDA in the second half of 2022 are expected to be comparable to the second half of 2021 but decrease significantly compared with the first half of 2022 primarily driven by current expectations for natural gas and oil prices and an anticipated reduction in production volumes.

As a result of the substantial earnings in the first half of 2022, the Company expects a significant increase in full-year 2022 operating profit over 2021.

Commodity prices are inherently volatile and as an owner of royalty and mineral interests, the Company’s access to information concerning activity and operations with respect to its interests is limited.

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In the first quarter of 2022, Minerals Management completed a small acquisition of mineral interests in the New Mexico portion of the Permian basin for $0.7 million.

Minerals Management is targeting additional investments in mineral and royalty interests of approximately $9 million in the remainder of 2022.

Minerals Management is targeting additional investments in mineral and royalty interests of approximately $12 million in the second half of 2022.

These investments are expected to be accretive, but each investment's contribution to earnings is dependent on the details of that investment, including the size and type of interests acquired and the stage and timing of mineral development.

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Consolidated Outlook

Overall for the 2022 full year, excluding the settlements associated with the GRE/Rainbow Energy transaction and the Bisti termination fee recognized in 2021, NACCO expects consolidated operating profit, net income and Consolidated EBITDA to decrease from 2021.

Lower operating profit in the Coal Mining segment is expected to be partially offset by an anticipated significant increase in earnings at the Minerals Management segment and higher operating profit at NAMining.

In addition, the Company recognized $3.4 million of gains associated with equity securities in 2021 that are not expected to recur.

Lower operating profit in the Coal Mining segment is expected to be partially offset by a significant increase in earnings

at the Minerals Management segment primarily from the substantial increase in Minerals Management's earnings in the first half of 2022.

In addition, income realized in 2021 on exchange-traded equity securities held by the Company is not expected to reoccur due to a deterioration in public equity markets during 2022.

The effective income tax rate, including the settlements associated with the GRE/Rainbow Energy transaction is expected to be between 15% and 17%.

The Company will recognize the value of the North Dakota office building and the membership units in Midwest AgEnergy received as part of the settlement with GRE as a component of other income.

In 2022, Consolidated Adjusted EBITDA, which excludes the termination and settlement payments, is expected to be comparable to 2021.

Consolidated capital expenditures are expected to be approximately $61 million in 2022 and include approximately $12 million for expenditures at Mitigation Resources.

In 2022, cash flow before financing activities is expected to be significantly lower than in 2021 as a result of the anticipated capital expenditures.

In 2022, cash flow before financing activities is expected to be significantly lower than in 2021 as a result of the anticipated increase in capital expenditures in 2022.

Growth and Diversification

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NAMining is pursuing growth and diversification by expanding the scope of its business development activities to include potential customers who require a broad range of minerals and materials and by leveraging the Company’s core mining skills to expand the range of contract mining services it provides.

NAMining continues to pursue additional opportunities to provide comprehensive mining services to operate entire mines, as it expects to do at the new lithium project in Nevada.

NAMining continues to pursue additional opportunities to provide comprehensive mining services to operate entire mines, as it expects to do at the lithium project in Nevada.

The goal is to build NAMining into a leading provider of contract mining services for customers that produce a wide variety of minerals and materials.

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Catapult Mineral Partners, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas mineral and royalty interests, has developed a strong network to source and secure new acquisitions, and has several potential acquisitions under review.

The goal is to construct a diversified portfolio of high-quality oil and gas mineral and royalty interests in the United States that deliver near-term cash flow yields and long-term projected growth.

The goal is to construct a high-quality diversified portfolio of oil and gas mineral and royalty interests in the United States that deliver near-term cash flow yields and long-term projected growth.

The Company believes this business will provide unlevered after-tax returns on invested capital in the low-to-mid-teens as the portfolio of reserves and mineral interests grows and this business model matures.

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This business offers an opportunity for growth and diversification in an industry where the Company has substantial knowledge and expertise and a strong reputation.

The Mitigation Resources business has achieved several early successes and is positioned for additional growth.

The Company's goal is to grow Mitigation Resources into one of the ten largest U.S.

providers of mitigation solutions, largely focused on streams and wetlands, initially in the southeast United States.

While this business is in the early stages of development, it is currently focused on expanding and has established mitigation projects in Alabama, Mississippi, Texas and Tennessee.

During the first half of 2022, Mitigation Resources purchased property to establish a new mitigation bank north of Dallas/Fort Worth and established a joint venture to provide mitigation services for the Lake Ralph Hall project in Northern Texas.

With these new 2022 projects, Mitigation Resources is involved in over 10 mitigation banks and permittee-responsible mitigation projects in Tennessee, Alabama, Mississippi and Texas and is making strong progress toward its goal to be a top ten U.S.

provider of stream and wetland mitigation services.

The Company believes that Mitigation Resources can provide solid rates of return as this business matures.

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Fluctuating natural gas prices and availability of renewable energy sources, such as wind and solar, could affect the amount of electricity dispatched from coal-fired power plants.

The Company continues to look for opportunities to expand its coal mining business where it can apply its management fee business model to assume operation of existing surface coal mining operations in the United States.

However, opportunities are very limited in the current environment.

In addition, the political and regulatory environment is not receptive to development of new coal-fired power generation projects which would create opportunities to build and operate new coal mines.

The Company is committed to maintaining a conservative capital structure as it continues to grow and diversify, while avoiding unnecessary risk.

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(1) changes to or termination of customer or other third-party contracts, or a customer or other third party default under a contract, (2) any customer's premature facility closure, (3) a significant reduction in purchases by the Company's customers, including as a result of changes in coal consumption patterns of U.S.

electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (4) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, (5) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons;

electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (4) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas, natural gas liquids and oil, (5) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons;

the availability and cost of transportation and processing services in the areas where the Company's oil and gas reserves are located;

federal and state legislative and regulatory initiatives relating to hydraulic fracturing;

and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (6) failure to obtain adequate insurance coverages at reasonable rates, (7) supply chain disruptions, including price increases and shortages of parts and materials, (8) the impact of the COVID-19 pandemic, including any impact on suppliers, customers and employees, (9) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (10) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (11) the effects of investors’ and other stakeholders’ increasing attention to environmental, social and governance (“ESG”) matters, (12) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (13) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (14) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (15) weather or equipment problems that could affect deliveries to customers, (16) changes in the costs to reclaim mining areas, (17) costs to pursue and develop new mining, mitigation and oil and gas opportunities and other value-added service opportunities, (18) delays or reductions in coal or aggregates deliveries, (19) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (20) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment, and (21) the ability to attract, retain, and replace workforce and administrative employees.

and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (6) failure to obtain adequate insurance coverages at reasonable rates, (7) supply chain disruptions, including price increases and shortages of parts and materials, (8) the impact of the COVID-19 pandemic, including any impact on suppliers, customers and employees, (9) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (10) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (11) impairment charges, (12) the effects of investors’ and other stakeholders’ increasing attention to environmental, social and governance (“ESG”) matters, (13) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (14) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (15) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (16) weather or equipment problems that could affect deliveries to customers, (17) changes in the costs to reclaim mining areas, (18) costs to pursue and develop new mining, mitigation and oil and gas opportunities and other value-added service opportunities, (19) delays or reductions in coal or aggregates deliveries, (20) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (21) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment, and (22) the ability to attract, retain, and replace workforce and administrative employees.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 1. Financial Statements