Note 1 - Basis of Presentation
Nature of Operations
Advanced Emissions Solutions, Inc. ("ADES" or the "Company") is a Delaware corporation with its principal office located in Greenwood Village, Colorado and operations located in Louisiana. The Company is principally engaged in the sale of consumable air and water treatment options including activated carbon ("AC") and chemical technologies. The Company's proprietary technologies in the advanced purification technologies ("APT") market enable customers to reduce air and water contaminants, including mercury and other pollutants, to maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending emission control regulations. Through its wholly-owned subsidiary, ADA Carbon Solutions, LLC ("Carbon Solutions"), the Company manufactures and sells AC used to capture and remove contaminants for coal-fired power plants and industrial and water treatment markets. Carbon Solutions also owns an associated lignite mine that supplies the primary raw material for manufacturing AC.
Through its equity ownership in Tinuum Group, LLC ("Tinuum Group") and Tinuum Services, LLC ("Tinuum Services"), both of which are unconsolidated entities, the Company generates substantial earnings. Tinuum Group provides reduction of mercury and nitrogen oxide ("NOx") emissions at select coal-fired power generators through the production and sale of refined coal ("RC") that qualifies for tax credits under the Internal Revenue Code ("IRC") Section 45 - Production Tax Credit ("Section 45 tax credits"). The Company also earns royalties for technologies that are licensed to Tinuum Group and used at certain RC facilities to enhance combustion and reduced emissions of NOx and mercury from coal burned to generate electrical power. Tinuum Services operates and maintains the RC facilities under operating and maintenance agreements with Tinuum Group and owners or lessees of the RC facilities. Both Tinuum Group and Tinuum Services are significantly winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, the Company's earnings and distributions from our RC segment will substantially cease as of December 31, 2021.
The Company’s sales occur principally in the United States. See Note 17 for additional information regarding the Company's operating segments.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements of ADES are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") and with Article 10 of Regulation S-X of the Securities and Exchange Commission. In compliance with those instructions, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.
The unaudited Condensed Consolidated Financial Statements of ADES in this quarterly report ("Quarterly Report") are presented on a consolidated basis and include ADES and its wholly-owned subsidiaries (collectively, the "Company"). Also included within the unaudited Condensed Consolidated Financial Statements are the Company's unconsolidated equity investments: Tinuum Group, Tinuum Services and GWN Manager, LLC ("GWN Manager"), which are accounted for under the equity method of accounting, and Highview Enterprises Limited (the "Highview Investment"), which is accounted for in accordance with U.S. GAAP applicable to equity investments that do not qualify for the equity method of accounting.
Results of operations and cash flows for the interim periods are not necessarily indicative of the results that may be expected for the entire year. All significant intercompany transactions and accounts were eliminated in consolidation for all periods presented in this Quarterly Report.
In the opinion of management, these Condensed Consolidated Financial Statements include all normal and recurring adjustments considered necessary for a fair presentation of the results of operations, financial position, stockholders' equity and cash flows for the interim periods presented. These Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Significant accounting policies disclosed therein have not changed.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the two-class method, which is an earnings allocation formula that determines earnings (loss) per share for common stock and any participating securities according to dividend and participating rights in undistributed earnings (losses). Pursuant to U.S. GAAP, the Company has elected not to separately present basic or diluted earnings per share attributable to participating securities in the Condensed Consolidated Statements of Operations.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Diluted earnings (loss) per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities. For the three and nine months ended September 30, 2021, potentially dilutive securities consist of unvested non-participating restricted stock awards ("RSA's"), as well as contingent performance stock units ("PSU's"). For the three and nine months ended September 30, 2020, potentially dilutive securities consist of both unvested, participating and non-participating RSA's, as well as outstanding options to purchase common stock ("Stock Options") and PSU's.
The dilutive effect, if any, for non-participating RSA's, Stock Options and PSU's is determined using the greater of dilution as calculated under the treasury stock method or the two-class method. Potentially dilutive securities are excluded from diluted earnings per share when their effect is anti-dilutive. When there is a net loss for a period, all potentially dilutive securities are anti-dilutive and are excluded from the calculation of diluted loss per share for that period.
The following table sets forth the calculations of basic and diluted earnings (loss) per share:
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|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands, except per share amounts)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net income (loss)
|
|
$
|
24,253
|
|
|
$
|
4,975
|
|
|
$
|
54,580
|
|
|
$
|
(20,732)
|
|
|
Less: Dividends and undistributed income (loss) allocated to participating securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
|
Income (loss) attributable to common stockholders
|
|
$
|
24,253
|
|
|
$
|
4,975
|
|
|
$
|
54,580
|
|
|
$
|
(20,722)
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|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
|
18,292
|
|
|
18,093
|
|
|
18,243
|
|
|
18,014
|
|
|
Add: dilutive effect of equity instruments
|
|
197
|
|
|
10
|
|
|
173
|
|
|
—
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|
|
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Diluted weighted-average shares outstanding
|
|
18,489
|
|
|
18,103
|
|
|
18,416
|
|
|
18,014
|
|
|
Earnings (loss) per share - basic
|
|
$
|
1.33
|
|
|
$
|
0.27
|
|
|
$
|
2.99
|
|
|
$
|
(1.15)
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|
|
Earnings (loss) per share - diluted
|
|
$
|
1.31
|
|
|
$
|
0.27
|
|
|
$
|
2.96
|
|
|
$
|
(1.15)
|
|
For the three and nine months ended September 30, 2021 and 2020, potentially dilutive securities convertible to zero and 0.5 million and 0.1 million and 0.9 million shares of common stock, respectively, were outstanding but were not included in the calculation of diluted net income (loss) per share because the effect would have been anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. There have been no changes in the Company’s critical accounting estimates from those that were disclosed in the 2020 Form 10-K. Actual results could differ from these estimates.
Due to the coronavirus ("COVID-19") pandemic, there has been uncertainty and disruption in the global economy and financial markets. Additionally, due to COVID-19, overall power generation and coal-fired power demand may decline, which could have a material adverse effect on the Company. The Company is not aware of any specific event or circumstance due to COVID-19 that would require an update to its estimates or judgments or a revision of the carrying values of its assets or liabilities through the date of this Quarterly Report. These estimates may change as new events occur and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Risks and Uncertainties
The Company’s earnings are significantly affected by equity earnings from Tinuum Group. As of September 30, 2021, Tinuum Group has 16 invested RC facilities, of which 5 are leased to a single customer. Both Tinuum Group and Tinuum Services are winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As of September 30, 2021, Tinuum Group ceased operating seven RC facilities, with the remaining RC facilities expected to cease operations during the fourth quarter of 2021. The loss of Tinuum Group's customers, reduction in revenue streams as a result of lease renewals and the expiration of Section 45 tax credits will have a significant adverse impact on Tinuum Group's financial position, results of operations and cash flows, which in turn will have a material adverse impact on the Company’s financial position, results of operations and cash flows.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company's revenues, sales volumes, earnings and cash flows are significantly affected by prices of competing power generation sources such as natural gas and renewable energy. During periods of low natural gas prices, natural gas provides a competitive alternative to coal-fired power generation and therefore, coal consumption may be reduced, which in turn reduces the demand for the Company's products. However, during periods of higher prices for competing power generation sources, there is an increase in coal consumption and thus demand for the Company's products also increase. In addition, coal consumption and demand for the Company's products are also affected by the demand for electricity, which is higher in the warmer and colder months of the year. Abnormal temperatures during the summer and winter months may significantly affect coal consumption and thus the demand for the Company's products.
Reclassifications
Certain balances have been reclassified from the prior year to conform to the current year presentation. Such reclassifications had no effect on the Company’s results of operations or financial position in any of the periods presented.
New Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in ASU 2016-13 replace the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. ASU 2016-13 is effective for "smaller reporting companies" (as defined by the Securities and Exchange Commission) for fiscal years beginning after December 15, 2022, including interim periods within those years, and must be adopted under a modified retrospective method approach. The Company is currently evaluating the provisions of this guidance and assessing the impact on its financial statements and disclosures and does not believe this standard will have a material impact on its financial statements and disclosures.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2 - Customer Supply Agreement
On September 30, 2020, the Company and Cabot Norit Americas, Inc., ("Cabot") entered into a supply agreement (the "Supply Agreement") pursuant to which the Company agreed to sell and deliver to Cabot, and Cabot agreed to purchase and accept from the Company certain lignite-based AC products ("Furnace Products").
As part of the Supply Agreement, the Company and Cabot agreed to additional terms whereby Cabot reimburses the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace Products, and both the Company and Cabot must mutually agree on these capital expenditures in advance of procurement and commissioning. Capital expenditures incurred that benefit both the Company and Cabot ("Shared Capital") are partially reimbursable by Cabot and recognized as revenues based on a formula contained in the Supply Agreement. Revenues from, and reimbursements of, Shared Capital are recognized and billable, respectively, beginning on the first day of a half year (January 1 and July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).
Capital expenditures incurred that benefit Cabot exclusively ("Specific Capital") are fully reimbursable by Cabot and recognized as revenues based on a formula contained in the Supply Agreement. Revenues earned from Specific Capital are recognized beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). Reimbursements of Specific Capital are billable in quarterly installments beginning on the first day of a half year following the placed in service date of a Specific Capital asset(s). In the event that Cabot ceases to make purchases under the Supply Agreement, Cabot is obligated to pay the balance of any outstanding amounts for Specific Capital.
Revenues earned from both Shared Capital and Specific Capital are reported in the Consumables revenue line item in the Statements of Operations.
Note 3 - Acquisition of Marshall Mine
Concurrently with the execution of the Supply Agreement, on September 30, 2020 (the "Acquisition Date"), the Company entered into an agreement to purchase from Cabot 100% of the membership interests in Marshall Mine, LLC (the "Marshall Mine Purchase Agreement") for a nominal cash purchase price. Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine"). The Company concluded that the Marshall Mine did not have any remaining economic reserves and independently determined to immediately commence activities to shutter it. On the Acquisition Date, the Company entered into a reclamation contract (the "Reclamation Contract") with a third party that provided a capped cost agreement, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs estimated to be $3.6 million (collectively, the "Reclamation Costs") over the estimated reclamation period of 10 years (the "Reclamation Period"). Under the terms of the Supply Agreement, Cabot is obligated to reimburse the Company for $10.2 million of Reclamation Costs (the "Reclamation Reimbursements"), which are payable semi-annually over 13 years and inclusive of interest. In the event that Cabot has a change in control as described in the Supply Agreement, all outstanding balances of the Reclamation Reimbursements shall be due and payable in full. See further discussion of the Reclamation Costs and Reclamation Reimbursements in Note 4.
The Marshall Mine Purchase Agreement included the acquisition of certain assets that will be consumed and the assumption of certain liabilities that are to be paid in reclamation of the Marshall Mine in addition to the incurrence of an obligation for the Reclamation Costs. The Company accounted for the Marshall Mine Purchase Agreement as an asset acquisition.
As the Marshall Mine Purchase Agreement represents a transaction with a customer of net assets acquired and liabilities assumed from Cabot, the Company accounted for the excess of the fair value of liabilities assumed over assets acquired as upfront consideration transferred to a customer, Cabot (the "Upfront Customer Consideration"). The amount of the Upfront Customer Consideration was also recognized net of an additional asset recognized in the Marshall Mine Acquisition, which was comprised of a receivable from Cabot (the "Cabot Receivable") for the Reclamation Reimbursements. The Cabot Receivable is further discussed in Note 4.
The total Upfront Customer Consideration is being amortized as a reduction to revenues on a straight-line basis over the expected 15-year contractual period of the Supply Agreement.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As part of the Marshall Mine Purchase Agreement, the Company assumed liabilities, whose fair value exceeded the fair value of assets acquired. A summary of the net assets acquired and liabilities assumed and the additional assets recorded in the Marshall Mine Purchase Agreement as of the Acquisition Date are shown in the table below. The Company completed additional analysis of the assets acquired and liabilities assumed and recorded adjustments as of December 31, 2020 as shown in the table below.
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(in thousands)
|
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As Originally Reported
|
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Adjustments
|
|
As Adjusted
|
|
Assets acquired:
|
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|
|
|
|
|
|
Receivables
|
|
$
|
—
|
|
|
$
|
513
|
|
|
$
|
513
|
|
|
Property, plant and equipment
|
|
3,863
|
|
|
—
|
|
|
3,863
|
|
|
Spare parts
|
|
100
|
|
|
—
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
(673)
|
|
|
160
|
|
|
(513)
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|
|
Asset retirement obligation
|
|
(21,328)
|
|
|
—
|
|
|
(21,328)
|
|
|
Net assets acquired and liabilities assumed from Marshall Mine acquisition
|
|
(18,038)
|
|
|
673
|
|
|
(17,365)
|
|
|
Cabot Receivable
|
|
9,749
|
|
|
—
|
|
|
9,749
|
|
|
Upfront Customer Consideration
|
|
$
|
8,289
|
|
|
$
|
(673)
|
|
|
$
|
7,616
|
|
The Company also evaluated Marshall Mine, LLC as a potential variable interest entity ("VIE"), and determined that it was a VIE and the Company was its primary beneficiary. Therefore, the Company consolidates Marshall Mine, LLC's assets and liabilities in its consolidated financial statements.
Note 4 - Marshall Mine Asset Retirement Obligation and Cabot Receivable
Asset Retirement Obligation
As of the Acquisition Date, the Company recorded an asset retirement obligation (the "Marshall Mine ARO") for the total Reclamation Costs of $21.3 million as measured at the expected future cash flows of $23.7 million, inclusive of contingency costs, discounted to their present value using a discount rate based on a credit-adjusted, risk-free rate of 7.0%. As of September 30, 2021 and December 31, 2020, the carrying value of the Marshall Mine ARO was $9.4 million and $18.1 million, respectively.
As of June 30, 2021, the Company revised its estimate of future obligations owed for the reclamation of the Marshall Mine primarily based on scope reductions related to future reclamation requirements. As a result, the Company reduced the Marshall Mine ARO by $1.9 million as of June 30, 2021 and recorded a corresponding gain on change in estimate for the three months ended June 30, 2021. This is included as "Gain on change in estimate, asset retirement obligation" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.
Cabot Receivable
As of the Acquisition Date, the Company recorded the Cabot Receivable at its estimated fair value of $9.7 million, reflecting a discount rate of approximately 1.5% or $0.5 million. There were no significant related fees or costs associated with the Cabot Receivable. The Company did not elect the fair value option in its initial or subsequent accounting for the Cabot Receivable.
The Cabot Receivable requires Cabot to pay the Reclamation Reimbursements to the Company in the amount of $10.2 million inclusive of interest based on a mutually agreed-upon payment schedule through 2033. Interest is accreted on the Cabot Receivable and recognized as interest income. An allowance for the Cabot Receivable asset is assessed periodically, and no allowance was deemed necessary as of September 30, 2021 and December 31, 2020.
Surety Bond
As the owner of the Marshall Mine, the Company is required to post a surety bond to ensure performance of its reclamation activities. On the Acquisition Date, the Company and a third party entered into a surety bond indemnification agreement (the "Surety Agreement") pursuant to which the Company secured and posted a $30.0 million surety bond (the "Bond") with the local regulatory agency. On June 7, 2021, the third party agreed to reduce the Surety Bond amount to $16.6 million. The Bond will remain in place until the Marshall Mine is fully reclaimed, and may be further reduced in amount from time to time as the Company progresses with its reclamation activities. As of September 30, 2021, the Company was required to post collateral of
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
$10.0 million for the obligations due under the Reclamation Contract, which is recorded as long-term restricted cash on the Condensed Consolidated Balance Sheet.
Note 5 - COVID-19
In March 2020, the federal government passed the Coronavirus Aid, Relief, and Security Act (the "CARES Act"), which provided among other things the creation of the Paycheck Protection Plan ("PPP"), which is sponsored and administered by the U.S. Small Business Administration ("SBA"). On April 20, 2020, the Company executed a loan agreement (the "PPP Loan") under the PPP, evidenced by a promissory note, with BOK, NA dba Bank of Oklahoma ("BOK"), providing for $3.3 million in proceeds, which was funded to the Company on April 21, 2020. The PPP Loan was scheduled to mature on April 21, 2022, unless forgiven subject to terms and conditions established by the SBA. The Company initially recorded the PPP Loan as a debt obligation and accrued interest over its term.
On July 27, 2021, the Company received formal notification in the form of a letter dated July 19, 2021 from BOK that the SBA approved the Company’s PPP Loan forgiveness application for the PPP Loan in the amount of $3.3 million (including accrued interest). For the three and nine months ended September 30, 2021, the Company recorded a gain on extinguishment of the PPP Loan in the amount of $3.3 million in the Condensed Consolidated Statements of Operations, which is included as a component of "Other income (expense)."
The CARES Act also provided for the deferral of payroll tax payments for all payroll taxes incurred through December 31, 2020. The Company elected to defer payments of payroll taxes for the periods allowed under the CARES Act and will repay 50% by December 31, 2021 and 50% by December 31, 2022. As of September 30, 2021, the Company has deferred $0.4 million of payroll tax payments under the CARES Act.
Note 6 - Equity Method Investments
Tinuum Group, LLC
As of September 30, 2021 and December 31, 2020, the Company's ownership interest in Tinuum Group was 42.5%. Tinuum Group supplies technology equipment and technical services at select coal-fired generators, but its primary purpose is to put into operation facilities that produce and sell RC that lower emissions and also qualify for Section 45 tax credits. The Company concluded that Tinuum Group was a VIE, but the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance, as the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore power is shared. Accordingly, the Company has accounted for its investment in Tinuum Group under the equity method of accounting since inception.
The following table summarizes the results of operations of Tinuum Group:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Gross (loss) profit
|
|
$
|
(3,226)
|
|
|
$
|
101
|
|
|
$
|
8,269
|
|
|
$
|
11,979
|
|
|
Operating, selling, general and administrative expenses
|
|
12,077
|
|
|
13,781
|
|
|
38,308
|
|
|
38,476
|
|
|
Loss from operations
|
|
(15,303)
|
|
|
(13,680)
|
|
|
(30,039)
|
|
|
(26,497)
|
|
|
Other income (expenses), net
|
|
6,027
|
|
|
5,739
|
|
|
10,030
|
|
|
11,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to noncontrolling interest
|
|
34,551
|
|
|
25,023
|
|
|
99,167
|
|
|
63,117
|
|
|
Net income available to members
|
|
$
|
25,275
|
|
|
$
|
17,082
|
|
|
$
|
79,158
|
|
|
$
|
48,146
|
|
|
ADES equity earnings from Tinuum Group
|
|
$
|
19,975
|
|
|
$
|
7,260
|
|
|
$
|
55,462
|
|
|
$
|
20,462
|
|
For the three and nine months ended September 30, 2021, the Company recognized earnings from Tinuum Group's net income available to members that were different from its pro-rata share of Tinuum Group's net income available to members, as cash distributions for the three and nine months ended September 30, 2021 exceeded the carrying value of the Tinuum Group equity investment. For 2021, the Company expects to recognize such excess contributions as equity method earnings in the period the distributions occur, limited to the carrying value of the Tinuum Group equity investment. For the three and nine months ended September 30, 2020, the Company recognized its pro-rata share of Tinuum Group's net income available to its members for the respective period.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables present the Company's investment balance, equity earnings and cash distributions in excess of the investment balance, if any, for the three and nine months ended September 30, 2021 and 2020 (in thousands):
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|
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Description
|
|
Date(s)
|
|
Investment balance
|
|
ADES equity earnings
|
|
Cash distributions
|
|
Memorandum Account: Cash distributions and equity earnings in (excess) of investment balance
|
|
Beginning balance
|
|
12/31/2020
|
|
$
|
3,387
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
First Quarter
|
|
10,755
|
|
|
10,755
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from Tinuum Group
|
|
First Quarter
|
|
(19,749)
|
|
|
—
|
|
|
19,749
|
|
|
—
|
|
|
Adjustment for current year cash distributions in excess of investment balance
|
|
First Quarter
|
|
5,607
|
|
|
5,607
|
|
|
—
|
|
|
(5,607)
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
3/31/2021
|
|
—
|
|
|
$
|
16,362
|
|
|
$
|
19,749
|
|
|
(5,607)
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
Second Quarter
|
|
12,146
|
|
|
$
|
12,146
|
|
|
$
|
—
|
|
|
—
|
|
|
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)
|
|
Second Quarter
|
|
(5,607)
|
|
|
(5,607)
|
|
|
—
|
|
|
5,607
|
|
|
Cash distributions from Tinuum Group
|
|
Second Quarter
|
|
(19,125)
|
|
|
—
|
|
|
19,125
|
|
|
—
|
|
|
Adjustment for current year cash distributions in excess of investment balance
|
|
Second Quarter
|
|
12,586
|
|
|
12,586
|
|
|
—
|
|
|
(12,586)
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
6/30/2021
|
|
$
|
—
|
|
|
$
|
19,125
|
|
|
$
|
19,125
|
|
|
$
|
(12,586)
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
Third Quarter
|
|
$
|
10,742
|
|
|
$
|
10,742
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Recovery of prior cash distributions in excess of investment balance (prior to cash distributions)
|
|
Third Quarter
|
|
(12,586)
|
|
|
(12,586)
|
|
|
—
|
|
|
12,586
|
|
|
Cash distributions from Tinuum Group
|
|
Third Quarter
|
|
(19,975)
|
|
|
—
|
|
|
19,975
|
|
|
—
|
|
|
Adjustment for current year cash distributions in excess of investment balance
|
|
Third Quarter
|
|
21,819
|
|
|
21,819
|
|
|
|
|
(21,819)
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
9/30/2021
|
|
$
|
—
|
|
|
$
|
19,975
|
|
|
$
|
19,975
|
|
|
$
|
(21,819)
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Date(s)
|
|
Investment balance
|
|
ADES equity earnings
|
|
Cash distributions
|
|
|
|
Beginning balance
|
|
12/31/2019
|
|
$
|
32,280
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
First Quarter
|
|
6,438
|
|
|
6,438
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from Tinuum Group
|
|
First Quarter
|
|
(13,764)
|
|
|
—
|
|
|
13,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
3/31/2020
|
|
24,954
|
|
|
$
|
6,438
|
|
|
$
|
13,764
|
|
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
Second Quarter
|
|
$
|
6,764
|
|
|
$
|
6,764
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from Tinuum Group
|
|
Second Quarter
|
|
(13,600)
|
|
|
—
|
|
|
13,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
6/30/2020
|
|
18,118
|
|
|
$
|
6,764
|
|
|
$
|
13,600
|
|
|
|
|
ADES proportionate share of income from Tinuum Group
|
|
Third Quarter
|
|
$
|
7,260
|
|
|
$
|
7,260
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions from Tinuum Group
|
|
Third Quarter
|
|
(7,862)
|
|
|
—
|
|
|
7,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment balance, equity earnings and cash distributions
|
|
9/30/2020
|
|
$
|
17,516
|
|
|
$
|
7,260
|
|
|
$
|
7,862
|
|
|
|
Tinuum Services, LLC
The Company has a 50% voting and economic interest in Tinuum Services as of September 30, 2021 and December 31, 2020. The Company determined that Tinuum Services was not a VIE and further evaluated it for consolidation under the voting interest model. Because the Company does not own greater than 50% of the outstanding voting shares, either directly or indirectly, it has accounted for its investment in Tinuum Services under the equity method of accounting since inception. As of September 30, 2021 and December 31, 2020, the Company’s investment in Tinuum Services was $2.8 million and $4.2 million, respectively.
The following table summarizes the results of operations of Tinuum Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Gross loss
|
|
$
|
(20,389)
|
|
|
$
|
(22,764)
|
|
|
$
|
(61,552)
|
|
|
$
|
(65,441)
|
|
|
Operating, selling, general and administrative expenses
|
|
42,346
|
|
|
42,435
|
|
|
144,068
|
|
|
131,703
|
|
|
Loss from operations
|
|
(62,735)
|
|
|
(65,199)
|
|
|
(205,620)
|
|
|
(197,144)
|
|
|
Other income (expenses), net
|
|
3,204
|
|
|
(363)
|
|
|
2,810
|
|
|
(978)
|
|
|
Loss attributable to noncontrolling interest
|
|
63,977
|
|
|
70,075
|
|
|
215,779
|
|
|
209,118
|
|
|
Net income
|
|
$
|
4,446
|
|
|
$
|
4,513
|
|
|
$
|
12,969
|
|
|
$
|
10,996
|
|
|
ADES equity earnings from Tinuum Services
|
|
$
|
2,223
|
|
|
$
|
2,257
|
|
|
$
|
6,485
|
|
|
$
|
5,498
|
|
Included in the Consolidated Statements of Operations of Tinuum Services for the three and nine months ended September 30, 2021 and 2020 were losses attributable to noncontrolling interests of Tinuum Services' VIE entities, which were eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details the carrying value of the Company's respective equity method investments included in the Equity method investments line item on the Condensed Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Equity method investment in Tinuum Group
|
|
$
|
—
|
|
|
$
|
3,387
|
|
|
Equity method investment in Tinuum Services
|
|
2,824
|
|
|
4,242
|
|
|
Equity method investment in other
|
|
60
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity method investments
|
|
$
|
2,884
|
|
|
$
|
7,692
|
|
The following table details the components of the Company's respective equity method investments included in the Earnings from equity method investments line item on the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Earnings from Tinuum Group
|
|
$
|
19,975
|
|
|
$
|
7,260
|
|
|
$
|
55,462
|
|
|
$
|
20,462
|
|
|
Earnings from Tinuum Services
|
|
2,223
|
|
|
2,257
|
|
|
6,485
|
|
|
5,498
|
|
|
(Loss) earnings from other
|
|
(3)
|
|
|
1
|
|
|
(3)
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments
|
|
$
|
22,195
|
|
|
$
|
9,518
|
|
|
$
|
61,944
|
|
|
$
|
25,959
|
|
The following table details the components of the cash distributions from the Company's respective equity method investments included as a component of cash flows from operating activities and investing activities in the Condensed Consolidated Statements of Cash Flows. Distributions from equity method investees are reported in the Condensed Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" within Operating cash flows until such time as the carrying value in an equity method investee company is reduced to zero. Thereafter, such distributions are reported as "distributions in excess of cumulative earnings" as a component of cash flows from investing activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
Distributions from equity method investees, return on investment
|
|
|
|
|
|
Tinuum Group
|
|
$
|
14,142
|
|
|
$
|
35,226
|
|
|
Tinuum Services
|
|
7,902
|
|
|
7,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,044
|
|
|
$
|
42,228
|
|
|
Distributions from equity method investees in excess of investment basis
|
|
|
|
|
|
Tinuum Group
|
|
$
|
44,707
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,707
|
|
|
$
|
—
|
|
Note 7 - Inventories, net
The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of September 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Product inventory, net
|
|
$
|
3,481
|
|
|
$
|
8,361
|
|
|
Raw material inventory
|
|
2,088
|
|
|
1,521
|
|
|
|
|
|
|
|
|
|
|
$
|
5,569
|
|
|
$
|
9,882
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 - Debt Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Finance lease obligations
|
|
$
|
4,441
|
|
|
$
|
5,526
|
|
|
PPP Loan
|
|
—
|
|
|
3,305
|
|
|
Senior Term Loan due December 2021, related party
|
|
—
|
|
|
16,000
|
|
|
Less: net unamortized debt issuance costs
|
|
—
|
|
|
(465)
|
|
|
Less: net unamortized debt discount
|
|
—
|
|
|
(480)
|
|
|
Senior Term Loan due December 2021, net
|
|
—
|
|
|
15,055
|
|
|
|
|
4,441
|
|
|
23,886
|
|
|
Less: Current maturities
|
|
(1,033)
|
|
|
(18,441)
|
|
|
Total long-term debt
|
|
$
|
3,408
|
|
|
$
|
5,445
|
|
Senior Term Loan
On December 7, 2018, the Company, and ADA-ES, Inc. ("ADA"), a wholly-owned subsidiary, and certain other subsidiaries of the Company as guarantors, The Bank of New York Mellon as administrative agent, and Apollo Credit Strategies Master Fund Ltd and Apollo A-N Credit Fund (Delaware) L.P. (collectively "Apollo"), affiliates of a beneficial owner of greater than five percent of the Company's common stock and a related party, entered into the Term Loan and Security Agreement (the "Senior Term Loan") in the amount of $70.0 million less original issue discount of $2.1 million. Proceeds from the Senior Term Loan were used to fund the acquisition of Carbon Solutions. The Company also paid debt issuance costs of $2.0 million related to the Senior Term Loan. The Senior Term Loan bore interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which was adjusted quarterly to the current 3-month LIBOR rate, and interest was payable quarterly in arrears.
On June 1, 2021 and prior to the Senior Term Loan's maturity date, the Company paid-off in its entirety the Senior Term Loan and all remaining accrued interest through this date. The Company did not incur any prepayment fees associated with the early pay-off.
Line of Credit
In September 2013, ADA, as borrower, and the Company, as guarantor, entered into a line credit (the "Line of Credit") with a bank (the "Lender") for an aggregate borrowing amount of $10.0 million, which was secured by certain amounts due to the Company from certain Tinuum Group RC leases. The Line of Credit has been amended 16 times from the period from December 2, 2013 through September 30, 2021 and included a reduction in the borrowing amount to $5.0 million in September 2018.
On March 23, 2021, ADA, the Company and the Lender entered into an amendment to the Line of Credit (the "Fifteenth Amendment"), which extended the maturity date of the Line of Credit to December 31, 2021 and increased the minimum cash requirement from $5.0 million to $6.0 million.
On July 29, 2021, the Company and the Lender entered into the Sixteenth Amendment (the "Sixteenth Amendment") to the Line of Credit. The Sixteenth Amendment amends certain terms and conditions related to collateral securing the Line of Credit.
As of September 30, 2021 and December 31, 2020, there were no outstanding borrowings under the Line of Credit.
Note 9 - Leases
As of September 30, 2021 and December 31, 2020, the Company had obligations under finance leases of $4.4 million and $5.5 million, respectively, and obligations under operating leases of $6.9 million and $3.0 million, respectively. As of September 30, 2021 and December 31, 2020, the Company had right of use ("ROU") assets, net of accumulated amortization, under finance leases of $1.9 million and $2.4 million, respectively, and ROU assets, net of accumulated amortization, under operating leases of $6.4 million and $1.9 million, respectively.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Finance leases
ROU assets under finance leases and finance lease liabilities are included in Property, plant and equipment and Current portion and Long-term portion of borrowings, respectively, in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020. Interest expense related to finance lease liabilities and amortization of ROU assets under finance leases are included in Interest expense and Depreciation, amortization, depletion and accretion, respectively, in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and September 30, 2020.
Operating leases
ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other current liabilities and Other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020.
Lease expense for operating leases for the three and nine months ended September 30, 2021 was $1.1 million and $3.1 million, respectively, of which $1.0 million and $2.7 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.4 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations. Lease expense for operating leases for the three and nine months ended September 30, 2020 was $1.1 million and $3.5 million, respectively, of which $1.0 million and $2.9 million, respectively, is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.1 million and $0.6 million, respectively, is included in General and administrative in the Condensed Consolidated Statement of Operations.
Lease financial information as of and for the three and nine months ended September 30, 2021 and 2020 is provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
152
|
|
|
$
|
258
|
|
|
$
|
500
|
|
|
$
|
1,237
|
|
|
Interest on lease liabilities
|
|
74
|
|
|
88
|
|
|
223
|
|
|
275
|
|
|
Operating lease cost
|
|
852
|
|
|
412
|
|
|
1,764
|
|
|
1,941
|
|
|
Short-term lease cost
|
|
288
|
|
|
671
|
|
|
1,261
|
|
|
1,377
|
|
|
Variable lease cost (1)
|
|
9
|
|
|
10
|
|
|
30
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
1,375
|
|
|
$
|
1,439
|
|
|
$
|
3,778
|
|
|
$
|
4,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Information:
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
Operating cash flows from finance leases
|
|
|
|
|
|
$
|
223
|
|
|
$
|
275
|
|
|
Operating cash flows from operating leases
|
|
|
|
|
|
$
|
2,514
|
|
|
$
|
1,678
|
|
|
Financing cash flows from finance leases
|
|
|
|
|
|
$
|
1,085
|
|
|
$
|
1,026
|
|
|
Right-of-use assets obtained in exchange for new finance lease liabilities
|
|
|
|
|
|
$
|
—
|
|
|
$
|
158
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
|
|
|
|
$
|
6,392
|
|
|
$
|
59
|
|
|
Weighted-average remaining lease term - finance leases
|
|
|
|
|
|
3.1 years
|
|
3.7 years
|
|
Weighted-average remaining lease term - operating leases
|
|
|
|
|
|
3.1 years
|
|
2.0 years
|
|
Weighted-average discount rate - finance leases
|
|
|
|
|
|
6.4
|
%
|
|
6.1
|
%
|
|
Weighted-average discount rate - operating leases
|
|
|
|
|
|
6.6
|
%
|
|
8.5
|
%
|
(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.
Note 10 - Revenues
Trade receivables represent an unconditional right to consideration in exchange for goods or services transferred to a customer. The Company invoices its customers in accordance with the terms of the contract. Credit terms are generally net 30 from the date of invoice. The timing between the satisfaction of performance obligations and when payment is due from the customer is
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
generally not significant. The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.
Trade receivables, net
The following table shows the components of the Company's Trade receivables, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Trade receivables
|
|
$
|
13,138
|
|
|
$
|
12,241
|
|
|
Less: Allowance for doubtful accounts
|
|
(5)
|
|
|
(37)
|
|
|
Trade receivables, net
|
|
$
|
13,133
|
|
|
$
|
12,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabot Receivable
The following table shows the components of the Cabot Receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Receivables, net
|
|
$
|
2,146
|
|
|
$
|
921
|
|
|
Other long-term assets, net
|
|
6,812
|
|
|
8,852
|
|
|
Total Cabot Receivable
|
|
$
|
8,958
|
|
|
$
|
9,773
|
|
Disaggregation of Revenue and Earnings from Equity Method Investments
For the three and nine months ended September 30, 2021 and 2020, all performance obligations related to revenues recognized were satisfied at a point in time. The Company disaggregates its revenues by major components as well as between its two reportable segments, which are further discussed in Note 17 to the Condensed Consolidated Financial Statements. The following tables disaggregate revenues by major component for the three and nine months ended September 30, 2021 and 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2021
|
|
Nine Months Ended September 30, 2021
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
APT
|
|
RC
|
|
|
|
Total
|
|
APT
|
|
RC
|
|
|
|
Total
|
|
Revenue component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
$
|
24,689
|
|
|
$
|
—
|
|
|
|
|
$
|
24,689
|
|
|
$
|
57,696
|
|
|
$
|
—
|
|
|
|
|
$
|
57,696
|
|
|
License royalties, related party
|
|
—
|
|
|
4,165
|
|
|
|
|
4,165
|
|
|
—
|
|
|
11,888
|
|
|
|
|
11,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from customers
|
|
24,689
|
|
|
4,165
|
|
|
|
|
28,854
|
|
|
57,696
|
|
|
11,888
|
|
|
|
|
69,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments
|
|
—
|
|
|
22,195
|
|
|
|
|
22,195
|
|
|
—
|
|
|
61,944
|
|
|
|
|
61,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from customers and earnings from equity method investments
|
|
$
|
24,689
|
|
|
$
|
26,360
|
|
|
|
|
$
|
51,049
|
|
|
$
|
57,696
|
|
|
$
|
73,832
|
|
|
|
|
$
|
131,528
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020
|
|
Nine Months Ended September 30, 2020
|
|
|
|
Segment
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
APT
|
|
RC
|
|
|
|
Total
|
|
APT
|
|
RC
|
|
|
|
Total
|
|
Revenue component
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
$
|
15,844
|
|
|
$
|
—
|
|
|
|
|
$
|
15,844
|
|
|
$
|
33,231
|
|
|
$
|
—
|
|
|
|
|
$
|
33,231
|
|
|
License royalties, related party
|
|
—
|
|
|
3,627
|
|
|
|
|
3,627
|
|
|
—
|
|
|
9,986
|
|
|
|
|
9,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from customers
|
|
15,844
|
|
|
3,627
|
|
|
|
|
19,471
|
|
|
33,231
|
|
|
9,986
|
|
|
|
|
43,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from equity method investments
|
|
—
|
|
|
9,518
|
|
|
|
|
9,518
|
|
|
—
|
|
|
25,959
|
|
|
|
|
25,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues from customers and earnings from equity method investments
|
|
$
|
15,844
|
|
|
$
|
13,145
|
|
|
|
|
$
|
28,989
|
|
|
$
|
33,231
|
|
|
$
|
35,945
|
|
|
|
|
$
|
69,176
|
|
Note 11 - Commitments and Contingencies
Legal Proceedings
The Company is from time to time subject to various pending or threatened legal actions and proceedings, including those that arise in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes, the financial impacts of which are not predictable with assurance and that may not be known for extended periods of time. The Company records a liability in its consolidated financial statements for costs related to claims, settlements, and judgments where management has assessed that a loss is probable and an amount can be reasonably estimated. There were no significant legal proceedings as of September 30, 2021.
Restricted Cash
As of September 30, 2021 and December 31, 2020, the Company had short-term restricted cash of $6.0 million and $5.0 million, respectively, as required under a minimum cash balance requirement of a Line of Credit covenant, and long-term restricted cash of $10.0 million and $5.0 million, respectively, as required under the Surety Agreement.
Other Commitments and Contingencies
The Company has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group. The Company, NexGen Refined Coal, LLC ("NexGen") and two entities affiliated with NexGen have provided an affiliate of the Goldman Sachs Group, Inc. with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations and covenants. The Company also is a party to a contribution agreement with NexGen under which any party called upon to pay on a Tinuum Group Party Guaranty is entitled to receive contributions from the other party equal to 50% of the amount paid. The Company has not recorded a liability or expense provision related to this contingent obligation as it believes that it is not probable that a loss will occur with respect to the Tinuum Group Party Guaranties.
Retention Agreements
The Company entered into agreements with its executive officers and certain other key employees of the organization ("Retention Agreements"). The Retention Agreements are for the benefit of retaining those officers and key employees in order to maintain the Company’s current business operations while it pursues and executes on its strategic initiatives. The Retention Agreements with the executive officers were approved by the Board of Directors on May 5, 2021. The Company is recognizing expense over the expected service period, which is based on certain conditions outlined in the Retention Agreements. As of September 30, 2021, the Company had accrued $0.8 million, which is included in the Accrued payroll and related liabilities line item on the Condensed Consolidated Balance Sheet.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12 - Stockholders' Equity
Stock Repurchase Programs
In November 2018, the Company's Board of Directors (the "Board") authorized the Company to purchase up to $20.0 million of its outstanding common stock under a stock repurchase program (the "Stock Repurchase Program"), which was to remain in effect until December 31, 2019 unless otherwise modified by the Board. As of November 2019, $2.9 million remained outstanding related to the Stock Repurchase Program. In November 2019, the Board authorized an incremental $7.1 million to the Stock Repurchase Program and provided that it will remain in effect until all amounts are utilized or it is otherwise modified by the Board.
Under the Stock Repurchase Program, for the three and nine months ended September 30, 2021, the Company did not repurchase any shares. For the three and nine months ended September 30, 2020, the Company purchased zero and 20,613 shares, respectively, of its common stock for cash of zero and $0.2 million, respectively, inclusive of commissions and fees. As of September 30, 2021, the Company had $7.0 million remaining under the Stock Repurchase Program.
Tax Asset Protection Plan
U.S. federal income tax rules, and Section 382 of the Internal Revenue Code in particular, could substantially limit the use of net operating losses and other tax assets if the Company experiences an "ownership change" (as defined in the Internal Revenue Code). In general, an ownership change occurs if there is a cumulative change in the ownership of the Company by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.
On May 5, 2017, the Board approved the declaration of a dividend of rights to purchase Series B Junior Participating Preferred Stock for each outstanding share of common stock as part of a tax asset protection plan (the "TAPP") designed to protect the Company’s ability to utilize its net operating losses and tax credits. The TAPP is intended to act as a deterrent to any person acquiring beneficial ownership of 4.99% or more of the Company’s outstanding common stock.
On April 9, 2021, the Board approved the Fourth Amendment to the TAPP ("Fourth Amendment") that amends the TAPP, as previously amended by the First, Second and Third Amendments that were approved the Board on April 6, 2018, April 5, 2019 and April 9, 2020, respectively. The Fourth Amendment amends the definition of "Final Expiration Date" under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith. At the Company's 2021 annual meeting of stockholders, the Company's stockholders approved the Fourth Amendment, thus the Final Expiration Date will be the close of business on December 31, 2022.
Note 13 - Stock-Based Compensation
The Company grants equity-based awards to employees, non-employee directors, and consultants that may include, but are not limited to, RSA's, restricted stock units ("RSU's"), performance stock units ("PSU's") and stock options. Stock-based compensation expense related to manufacturing employees and administrative employees is included within the Cost of revenue and Payroll and benefits line items, respectively, in the Condensed Consolidated Statements of Operations. Stock-based compensation expense related to non-employee directors and consultants is included within the General and administrative line item in the Condensed Consolidated Statements of Operations.
Total stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
RSA expense
|
|
$
|
435
|
|
|
$
|
411
|
|
|
$
|
1,353
|
|
|
$
|
1,892
|
|
|
|
|
|
|
|
|
|
|
|
|
PSU expense
|
|
54
|
|
|
15
|
|
|
123
|
|
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
489
|
|
|
$
|
426
|
|
|
$
|
1,476
|
|
|
$
|
2,070
|
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The amount of unrecognized compensation cost as of September 30, 2021, and the expected weighted-average period over which the cost will be recognized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
(in thousands)
|
|
Unrecognized Compensation Cost
|
|
Expected Weighted-
Average Period of
Recognition (in years)
|
|
RSA expense
|
|
$
|
2,558
|
|
|
2.01
|
|
|
|
|
|
|
|
PSU expense
|
|
438
|
|
|
1.99
|
|
|
|
|
|
|
|
Total unrecognized stock-based compensation expense
|
|
$
|
2,996
|
|
|
2.01
|
Restricted Stock
Restricted stock is typically granted with vesting terms of three years. The fair value of RSA's and RSU's is determined based on the closing price of the Company’s common stock on the authorization date of the grant multiplied by the number of shares subject to the stock award. Compensation expense for RSA's is generally recognized on a straight-line basis over the entire vesting period.
A summary of RSA activity under the Company's various stock compensation plans for the nine months ended September 30, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
|
|
Weighted-Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at January 1, 2021
|
|
373,860
|
|
|
|
|
$
|
7.25
|
|
|
|
|
Granted
|
|
441,109
|
|
|
|
|
$
|
5.53
|
|
|
|
|
Vested
|
|
(193,624)
|
|
|
|
|
$
|
7.44
|
|
|
|
|
Forfeited
|
|
(54,299)
|
|
|
|
|
$
|
5.80
|
|
|
|
|
Non-vested at September 30, 2021
|
|
567,046
|
|
|
|
|
$
|
5.99
|
|
|
|
Performance Share Units
Compensation expense is recognized for PSU awards on a straight-line basis over the applicable service period, which is generally three years, based on the estimated fair value at the date of grant using a Monte Carlo simulation model. A summary of PSU activity for the nine months ended September 30, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Aggregate Intrinsic Value (in thousands)
|
|
Weighted-Average
Remaining
Contractual
Term (in years)
|
|
PSU's outstanding, January 1, 2021
|
|
50,127
|
|
|
$
|
6.17
|
|
|
|
|
|
|
Granted
|
|
62,448
|
|
|
7.09
|
|
|
|
|
|
|
Vested / Settled
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Forfeited / Canceled
|
|
—
|
|
|
—
|
|
|
|
|
|
|
PSU's outstanding, September 30, 2021
|
|
112,575
|
|
|
$
|
6.68
|
|
|
$
|
719
|
|
|
1.99
|
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 14 - Supplemental Financial Information
Supplemental Balance Sheet Information
The following table summarizes the components of Prepaid expenses and other assets and Other long-term assets, net as presented in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
September 30,
2021
|
|
December 31,
2020
|
|
Prepaid expenses and other assets:
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
2,370
|
|
|
$
|
1,690
|
|
|
Prepaid income taxes and income tax refunds
|
|
1,038
|
|
|
1,605
|
|
|
Other
|
|
1,206
|
|
|
1,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,614
|
|
|
$
|
4,597
|
|
|
Other long-term assets, net:
|
|
|
|
|
|
Cabot Receivable (1)
|
|
$
|
6,812
|
|
|
$
|
8,852
|
|
|
Upfront Customer Consideration (1)
|
|
7,109
|
|
|
7,490
|
|
|
Mine development costs, net
|
|
5,291
|
|
|
4,338
|
|
|
Right of use assets, operating leases, net
|
|
6,399
|
|
|
1,930
|
|
|
Spare parts, net
|
|
4,316
|
|
|
3,727
|
|
|
Mine reclamation asset, net
|
|
1,644
|
|
|
1,712
|
|
|
Highview Investment
|
|
552
|
|
|
552
|
|
|
Other
|
|
1,278
|
|
|
1,388
|
|
|
|
|
$
|
33,401
|
|
|
$
|
29,989
|
|
(1) See further discussion of Upfront Customer Consideration in Note 3 and Cabot Receivable in Note 4 and Note 10.
Spare parts include critical spares required to support plant operations. Parts and supply costs are determined using the lower of cost or estimated replacement cost. Parts are recorded as maintenance expenses in the period in which they are consumed.
Mine development costs include acquisition costs, the cost of other development work and mitigation costs related to the Five Forks Mine and are depleted over the estimated life of the related mine reserves. The Company performs an evaluation of the recoverability of the carrying value of mine development costs to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted. There were no indicators of impairment as of September 30, 2021. Mine reclamation asset, net represents an asset retirement obligation ("ARO") asset related to the Five Forks Mine and is depreciated over the estimated life of the Five Forks Mine.
The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a UK-based developmental stage company specializing in power storage. The Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer.
The Highview Investment is evaluated for indicators of impairment such as an event or change in circumstances that may have a significant adverse effect on the fair value of the investment. There were no changes to the carrying value of the Highview Investment for the three and nine months ended September 30, 2021 as there were no indicators of impairment or observable price changes for identical or similar investments.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Other current liabilities:
|
|
|
|
|
|
Current portion of operating lease obligations
|
|
$
|
2,289
|
|
|
$
|
1,883
|
|
|
|
|
|
|
|
|
Current portion of mine reclamation liability
|
|
4,856
|
|
|
9,370
|
|
|
Income and other taxes payable
|
|
2,409
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
312
|
|
|
438
|
|
|
|
|
|
|
|
|
|
|
$
|
9,866
|
|
|
$
|
12,996
|
|
|
Other long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Mine reclamation liabilities
|
|
$
|
8,028
|
|
|
$
|
12,077
|
|
|
|
|
|
|
|
|
Operating lease obligations, long-term
|
|
4,582
|
|
|
1,109
|
|
|
Other long-term liabilities
|
|
208
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
$
|
12,818
|
|
|
$
|
13,473
|
|
The Mine reclamation liability related to the Five Forks Mine is included in Other long-term liabilities. The Mine reclamation liability related to Marshall Mine, which was assumed in the Marshall Mine Acquisition, is included in Other current liabilities and Other long-term liabilities. The Mine reclamation liabilities represent AROs. Changes in the AROs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30, 2021
|
|
December 31, 2020
|
|
Asset retirement obligation, beginning of period
|
|
$
|
21,447
|
|
|
$
|
2,721
|
|
|
Asset retirement obligation assumed
|
|
—
|
|
|
21,328
|
|
|
Accretion
|
|
901
|
|
|
543
|
|
|
Liabilities settled
|
|
(7,522)
|
|
|
(3,565)
|
|
|
Changes due to scope and timing of reclamation
|
|
(1,942)
|
|
|
420
|
|
|
|
|
|
|
|
|
Asset retirement obligations, end of period
|
|
12,884
|
|
|
21,447
|
|
|
Less current portion
|
|
4,856
|
|
|
9,370
|
|
|
Asset retirement obligation, long-term
|
|
$
|
8,028
|
|
|
$
|
12,077
|
|
As discussed in Note 4, as of June 30, 2021, the Company reduced the Mine reclamation liability related to Marshall Mine by $1.9 million based on scope reductions for future reclamation requirements. The Company recorded a corresponding gain on change in estimate, which is included in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2021.
Supplemental Condensed Consolidated Statements of Operations Information
The following table details the components of Interest expense in the Condensed Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Interest on Senior Term Loan
|
|
$
|
—
|
|
|
$
|
339
|
|
|
$
|
207
|
|
|
$
|
1,453
|
|
|
Debt discount and debt issuance costs
|
|
—
|
|
|
355
|
|
|
946
|
|
|
1,064
|
|
|
453A interest
|
|
3
|
|
|
94
|
|
|
10
|
|
|
254
|
|
|
Other
|
|
83
|
|
|
93
|
|
|
253
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86
|
|
|
$
|
881
|
|
|
$
|
1,416
|
|
|
$
|
3,053
|
|
Note 15 - Impairment
As of June 30, 2020 and as part of its periodic review of the carrying value of long-lived assets, the Company assessed its long-lived assets for potential impairment. In assessing impairment of its APT segment's and certain other long-lived asset groups,
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the Company considered factors such as the significant decline in both the APT segment's trailing twelve months revenues and current and future years’ forecasted revenues. These factors were largely due to the significant drop in coal-fired power dispatch that began in 2019 amid historically low prices of alternative power generation sources such as natural gas, leading to an increase in natural gas usage as well as other competing energy sources.
As of June 30, 2020, the Company completed an undiscounted cash flow analysis of its APT segment's long-lived assets (the "Asset Group"), which are comprised of its manufacturing plant (the "Red River Plant") and related assets and its lignite mine assets, and estimated the undiscounted cash flows from the Asset Group at $54.7 million, which was less than the carrying value of the Asset Group of $58.3 million. Accordingly, the Company completed an assessment of the Asset Group’s fair value and estimated the fair value of the Asset Group at $32.2 million. This resulted in an impairment and write-down of the Asset Group (the "Impairment Charge") of $26.1 million as of June 30, 2020, which is reflected as "Impairment of long-lived assets" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2020.
The following table summarizes the allocation to the Asset Group of the Impairment Charge of $26.1 million recorded as of June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Property, plant and equipment, net
|
|
$
|
18,986
|
|
|
Intangible assets, net
|
|
1,445
|
|
|
Other long-term assets, net
|
|
5,672
|
|
|
|
|
|
|
Total impairment
|
|
$
|
26,103
|
|
The Company engaged an independent third party to perform the valuation of the Asset Group in order to determine the estimated fair value of the Asset Group. This valuation was based on the use of several established valuation models including an expected future discounted cash flow model based on cash flows expected to be generated by market participants discounted at the risk-free rate of interest. Because of the continued future uncertainty surrounding the level of coal-fired dispatch, the impact of volatile natural gas prices and other estimates impacting the expected future cash flow, it is reasonably possible that the expected future cash flows may change in the near term and may result in the Company recording additional impairment of the Asset Group.
As of September 30, 2021, the Company determined that there was no additional impairment of the Asset Group.
Note 16 - Income Taxes
For the three and nine months ended September 30, 2021 and 2020, the Company's income tax expense and effective tax rates based on forecasted pretax income were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands, except for rate)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Income tax expense
|
|
$
|
4,581
|
|
|
$
|
854
|
|
|
$
|
14,013
|
|
|
$
|
1,315
|
|
|
Effective tax rate
|
|
16
|
%
|
|
15
|
%
|
|
20
|
%
|
|
(7)
|
%
|
The effective rate for the three and nine months ended September 30, 2021 was lower than the federal statutory rate primarily from the impact of a decrease in the valuation allowance recorded against deferred tax assets as of September 30, 2021.
The Company assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize deferred tax assets, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating income taxes, the Company assesses the relative merits and risks of the appropriate income tax treatment of transactions taking into account statutory, judicial, and regulatory guidance.
Note 17 - Business Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by a company's chief operating decision maker ("CODM"), or a decision-making group, to allocate
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
resources and assess financial performance. As of September 30, 2021, the Company's CODM was the Company's CEO. The Company's operating and reportable segments are identified by products and services provided.
As of September 30, 2021, the Company has two reportable segments: (1) Refined Coal ("RC"); and (2) Advanced Purification Technologies ("APT"). Effective December 31, 2020, and as reported in the 2020 Form 10-K, the Company revised its segments to RC and APT, and amounts for the three and nine months ended September 30, 2020 have been recast to conform with the current year presentation. Both Tinuum Group and Tinuum Services are significantly winding down their operations due to the expected expiration of the Section 45 tax credit period as of December 31, 2021. As such, the Company's earnings and distributions from our RC segment will substantially cease as of December 31, 2021.
The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below:
•The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the 2020 Form 10-K.
•Segment revenues include equity method earnings and losses from the Company's equity method investments.
•Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which include Payroll and benefits, General and administrative and Depreciation, amortization, depletion and accretion.
•RC segment operating income includes interest expense directly attributable to the RC segment.
As of September 30, 2021 and December 31, 2020, substantially all of the Company's material assets are located in the U.S. and substantially all significant customers are U.S. companies. The following table presents the Company's operating segment results for the three and nine months ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Refined Coal:
|
|
|
|
|
|
|
|
|
|
Earnings in equity method investments
|
|
$
|
22,195
|
|
|
$
|
9,518
|
|
|
$
|
61,944
|
|
|
$
|
25,959
|
|
|
License royalties, related party
|
|
4,165
|
|
|
3,627
|
|
|
11,888
|
|
|
9,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,360
|
|
|
13,145
|
|
|
73,832
|
|
|
35,945
|
|
|
Advanced Purification Technologies:
|
|
|
|
|
|
|
|
|
|
Consumables
|
|
24,689
|
|
|
15,844
|
|
|
57,696
|
|
|
33,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,689
|
|
|
15,844
|
|
|
57,696
|
|
|
33,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment reporting revenues
|
|
51,049
|
|
|
28,989
|
|
|
131,528
|
|
|
69,176
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to reported revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings in equity method investments
|
|
(22,195)
|
|
|
(9,518)
|
|
|
(61,944)
|
|
|
(25,959)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reported revenues
|
|
$
|
28,854
|
|
|
$
|
19,471
|
|
|
$
|
69,584
|
|
|
$
|
43,217
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refined Coal
|
|
$
|
26,341
|
|
|
$
|
12,817
|
|
|
$
|
73,517
|
|
|
$
|
34,454
|
|
|
Advanced Purification Technologies (1) (2)
|
|
4,591
|
|
|
(3,280)
|
|
|
4,864
|
|
|
(40,649)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income (loss)
|
|
$
|
30,932
|
|
|
$
|
9,537
|
|
|
$
|
78,381
|
|
|
$
|
(6,195)
|
|
(1) Included in APT segment operating income (loss) for the three and nine months ended September 30, 2021 and 2020 is $2.0 million and $5.7 million, $1.6 million and $5.4 million, respectively, of depreciation, amortization, depletion and accretion expense on mine and Red River Plant long-lived assets and liabilities and $0.1 million, $0.4 million, zero and zero, respectively, of amortization of Upfront Customer Consideration.
(2) Included in APT segment operating income for the nine months ended September 30, 2021 is $1.9 million gain related to the change in the Marshall Mine ARO as of September 30, 2021.
Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A reconciliation of reportable segment operating income to consolidated income (loss) before income tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(in thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Total reported segment operating income (loss)
|
|
$
|
30,932
|
|
|
$
|
9,537
|
|
|
$
|
78,381
|
|
|
$
|
(6,195)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to income (loss) before income (loss) tax expense attributable to the Company:
|
|
|
|
|
|
|
|
|
|
Corporate payroll and benefits
|
|
(690)
|
|
|
(587)
|
|
|
(2,155)
|
|
|
(2,444)
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate legal and professional fees
|
|
(1,024)
|
|
|
(1,176)
|
|
|
(4,154)
|
|
|
(3,850)
|
|
|
Corporate general and administrative
|
|
(1,011)
|
|
|
(1,116)
|
|
|
(3,236)
|
|
|
(4,273)
|
|
|
Corporate depreciation and amortization
|
|
(132)
|
|
|
(148)
|
|
|
(408)
|
|
|
(337)
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate interest income (expense), net
|
|
54
|
|
|
(680)
|
|
|
(944)
|
|
|
(2,446)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
705
|
|
|
(1)
|
|
|
1,109
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense
|
|
$
|
28,834
|
|
|
$
|
5,829
|
|
|
$
|
68,593
|
|
|
$
|
(19,417)
|
|
Corporate general and administrative expenses include certain costs that benefit the business as a whole but are not directly related to one of the Company's segments. Such costs include, but are not limited to, accounting and human resources staff, information systems costs, legal fees, facility costs, audit fees and corporate governance expenses.
A reconciliation of reportable segment assets to consolidated assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
(in thousands)
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Assets:
|
|
|
|
|
|
Refined Coal (1)
|
|
$
|
7,182
|
|
|
$
|
11,516
|
|
|
Advanced Purification Technologies (2)
|
|
83,862
|
|
|
80,877
|
|
|
Total segment assets
|
|
91,044
|
|
|
92,393
|
|
|
|
|
|
|
|
|
All Other and Corporate (3)
|
|
90,729
|
|
|
54,278
|
|
|
Consolidated
|
|
$
|
181,773
|
|
|
$
|
146,671
|
|
(1) Includes $2.9 million and $7.7 million of investments in equity method investees as of September 30, 2021 and December 31, 2020, respectively.
(2) Includes $37.0 million and $34.6 million of long-lived assets, net.
(3) Includes the Company's deferred tax assets of $1.6 million and $10.6 million as of September 30, 2021 and December 31, 2020, respectively. Also includes Cash, cash equivalents and restricted cash of $82.1 million and $17.2 million as of September 30, 2021 and December 31, 2020.
Note 18 - Fair Value Measurements
Fair value of financial instruments
The carrying amounts of financial instruments, including cash, cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short maturity of these instruments. The carrying amounts of the Cabot Receivable and debt obligations approximate fair value based on credit terms and market interest rates currently available for similar instruments. Accordingly, these instruments are not presented in the table below. The following table provides the estimated fair values of the remaining financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
As of December 31, 2020
|
|
(in thousands)
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
|
Financial Instruments:
|
|
|
|
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Highview Investment
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$
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552
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$
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552
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$
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552
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$
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552
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Highview Obligation
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|
$
|
226
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|
|
$
|
226
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$
|
228
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$
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228
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Advanced Emissions Solutions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Concentration of credit risk
The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds cash and cash equivalents at three financial institutions as of September 30, 2021. If an institution was unable to perform its obligations, the Company would be at risk regarding the amount of cash and investments in excess of the Federal Deposit Insurance Corporation limits (currently $250 thousand) that would be returned to the Company.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of September 30, 2021 and December 31, 2020, the Company had no financial instruments carried and measured at fair value on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
As disclosed in Note 14, the Company accounts for the Highview Investment as an investment recorded at cost, less impairment, plus or minus observable changes in price for identical or similar investments of the same issuer. Fair value measurements, if any, represent either Level 2 or Level 3 measurements.