What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-10 compared with 2020-03-16 · 691 added, 573 removed, 791 unchanged (62% of the section changed)

16 unchanged sentences

We have audited the accompanying consolidated balance sheets of Advanced Emissions Solutions, Inc.

and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework ( 2013 ) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, in 2019 the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification (ASC) 842.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Income Taxes – Realizability of Deferred Tax Assets

As described in Notes 1 and 18 to the consolidated financial statements, the Company recognizes deferred income taxes for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying consolidated balance sheet.

These temporary differences result in taxable or deductible amounts in future years.

Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized.

As of December 31, 2020 the Company concluded it is more likely than not the Company will generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize $10.6 million of its net deferred tax assets, which resulted in a valuation allowance of $88.8 million.

We identified the realizability of deferred tax assets as a critical audit matter due to the Company’s tax structure and the significant judgments and estimates made by management to determine that sufficient taxable income will be generated to realize a portion of deferred tax assets prior to expiration.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate management’s estimates of taxable income prior to expiration.

The primary procedures we performed to address this critical audit matter included:

• Recalculating the mathematical accuracy of management’s accounting for the previously described taxes, which included supporting calculations, schedules, and reconciliations.

• Reading and evaluating management’s documentation of the accounting for income taxes, including relevant significant accounting policies, and information obtained by management from third party tax specialists which details management’s basis for the accounting and impact to the consolidated financial statements.

• Obtaining and evaluating the supporting tax analyses and documentation prepared by management, as a framework and initial support for audit procedures.

This includes the Company’s deferred tax calculations, which also integrates management’s analysis of valuation allowances, current tax expenses (benefits), and IRC Section 45 credits.

• Consulting with internal tax specialists in evaluating management’s calculation of its provision for income taxes and that the significant judgments used were applied consistently with the tax code.

• Validating the parameters employed by management in their analysis of the partial valuation allowance, in order to gain comfort with relevant positive and negative evidence available and utilized in performing the analysis.

• Evaluating whether significant estimates and judgments used were consistent with past performance related to said estimates, the consistency of future forecasts and projections based on current operating conditions and future expectations, and that all were consistent with evidence obtained in procedures performed in other areas of the audit.

Accounting for Cabot Transactions

As described in Notes 2, 3, and 4 to the consolidated financial statements, on September 30, 2020, the Company entered into a supply agreement (the Supply Agreement) with Cabot Norit Americas, Inc.

(Cabot) to sell and deliver certain lignite-based AC products.

Concurrently with the execution of the Supply Agreement, the Company entered into an agreement to purchase (the Mine Purchase Agreement) from Cabot 100% of the membership interests in Marshall Mine, LLC for a nominal purchase price.

Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the Marshall Mine).

The Company independently determined to immediately commence activities to shutter the Marshall Mine and will incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Purchase Agreement, the Company entered into a reclamation contract (the Reclamation Contract) with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $19.7 million plus an obligation to pay certain direct costs of approximately $3.6 million (collectively, the Reclamation Costs) over the estimated reclamation period of 10 years.

Under the terms of the Supply Agreement, Cabot is obligated to reimburse the Company for $10.2 million of the Reclamation Costs (the Reclamation Reimbursements).

In connection with the Supply Agreement, Purchase Agreement, and the Reclamation Contract, the Company assumed the obligations to reclaim and restore the land associated with the Marshall Mine.

As of September 30, 2020, the Company recorded an asset retirement obligation for the total Reclamation Costs of $21.3 million.

The Company also recorded a receivable for the Reclamation Reimbursements at its estimated fair value of $9.7 million.

These transactions also resulted in the recording of property, plant, and equipment of $3.9 million, spare parts of $0.1 million, receivables of $0.5 million, accounts payable and accrued liabilities of $0.5 million, and upfront customer consideration of $7.6 million.

The upfront customer consideration is the excess of the fair value of the liabilities assumed over assets acquired and will be amortized on a straight-line basis as a reduction to revenue over the expected 15-year contractual period of the Supply Agreement.

We identified the accounting for these agreements and contracts as a critical audit matter due to the subjective judgment required to evaluate the appropriateness of the accounting guidance followed in recording these transactions, including the conclusions surrounding the interrelatedness of the transactions and the application of Generally Accepted Accounting Principles surrounding the treatment of the upfront customer consideration.

The primary procedures we performed to address this critical audit matter included:

• Evaluating management’s significant accounting policies related to the various aspects of these transactions for appropriateness, which incorporated the use of a subject matter expert on technical accounting matters.

• Gaining an understanding of the transactions, including the business purpose and terms, by obtaining and reading the related contracts and through discussion with management.

• Evaluating the estimated future cash flows for consistency with the terms laid out in the contract.

Assessment of Impairment of Long-lived Assets

As described in Note 5 to the consolidated financial statements, as part of its periodic review of the carrying value of long-lived assets, the Company assesses its long-lived assets for potential impairment.

At June 30, 2020, in assessing impairment of its advanced purification technologies (APT) segment and certain other long-lived asset groups (the Asset Group), based on market conditions such as current and future years’ forecasted revenue and historically low prices of alternative power generation sources, management concluded there should be an impairment analysis of the Asset Group.

Accordingly, the Company completed an undiscounted cash flow analysis of the Asset Group and estimated that the undiscounted cash flows from the Asset Group were less than the carrying value of the Asset Group.

As such, the Company completed an assessment of the Asset Group’s fair value, resulting in a $26.1 million impairment and write-down of the Asset Group.

We identified the assessment and measurement of the impairment of the Asset Group as a critical audit matter due to the auditor judgment required to evaluate management’s process for assessing and quantifying the impairment.

Specifically, assessing certain internally developed assumptions included the need to involve our fair value specialists.

These assumptions included cash flow forecasts and revenue growth rates, estimates relating to the cost structure and operating margins, and the discount rate.

The primary procedures we performed to address this critical audit matter included:

• Recalculating the mathematical accuracy of both the undiscounted cash flow analysis and the assessment of the Asset Group’s fair value.

• Evaluating the Company’s estimated cash flow forecasts and long-term revenue growth rates by comparing to historical data, current market conditions, and our knowledge of the Company’s operations and the industry.

• Obtaining and evaluating the fair value report used to estimate the Asset Group’s fair value which was prepared by management’s third-party valuation specialist and was evaluated and approved by the Company’s management team.

This evaluation incorporated the use of the expertise of our internal fair value specialists.

The work of our fair value specialists included reviews and analysis of the model and related assumptions used for the valuation of the Asset Group and the appropriateness of such modeling for the type of valuation being performed.

/s/ Moss Adams LLP

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Inventories, net 9,882 15,460

Prepaid expenses and other assets

Prepaid expenses and other current assets 4,597 7,832

Total current assets 61,989 47,048

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Property, plant and equipment, net of accumulated depreciation of $ 3,340 and $ 7,444 , respectively

29,433 44,001

Intangible assets, net 1,964 4,169

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Other long-term assets, net 29,989 20,331

Total Assets $ 146,671 $ 173,799

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Total Liabilities 61,461 65,507

Commitments and contingencies (Notes 6 and 9)

Commitments and contingencies (Notes 14)

Stockholders’ equity:

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4,618,146 and 4,597,533 shares as of December 31, 2020 and 2019, respectively

( 47,692 ) ( 47,533 )

Additional paid-in capital 100,425 98,466

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(in thousands, except per share data) 2020 2019

Consumables $ 48,122 $ 53,187

License royalties, related party 13,440 16,899

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Depreciation, amortization, depletion and accretion 8,537 7,371

Impairment of long-lived assets 26,103 —

Gain on settlement ( 1,129 ) —

Total operating expenses 102,558 84,979

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Interest expense ( 3,920 ) ( 7,174 )

Other 132 427

Total other income 27,190 62,429

Income before income tax expense

(Loss) income before income tax expense ( 13,791 ) 47,536

Income tax expense 6,511 11,999

Earnings per common share (Note 1):

Net (loss) income $ ( 20,302 ) $ 35,537

(Loss) earnings per common share (Note 1):

Basic $ ( 1.12 ) $ 1.96

Diluted $ ( 1.12 ) $ 1.93

Weighted-average number of common shares outstanding:

Basic 18,044 18,154

Diluted 18,044 18,372

See Notes to the Consolidated Financial Statements.

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Consolidated Statements of Changes in Stockholders’ Equity

Treasury Stock

(in thousands, except share data)

Additional Paid-in Capital

Retained Earnings/(Accumulated Deficit)

Total Stockholders’

Common Stock Treasury Stock

(in thousands, except share data) Shares Amount Shares Amount Additional Paid-in Capital Retained Earnings/(Accumulated Deficit) Total Stockholders’

Balances, January 1, 2019 22,640,677 $ 23 ( 4,064,188 ) $ ( 41,740 ) $ 96,750 $ 12,914 $ 67,947

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Repurchase of common shares — — ( 533,345 ) ( 5,793 ) — — ( 5,793 )

Net income — — — — — 35,537 35,537

Balances, December 31, 2019 22,960,157 $ 23 ( 4,597,533 ) $ ( 47,533 ) $ 98,466 $ 57,336 $ 108,292

Cumulative effect of change in accounting principle (Note 5)

Stock-based compensation 278,910 — — — 2,496 — 2,496

Issuance of stock upon exercise of options, net

Repurchase of common shares to satisfy tax withholdings ( 97,783 ) — — — ( 537 ) — ( 537 )

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Repurchase of common shares — — ( 20,613 ) ( 159 ) — — ( 159 )

Net loss — — — — — ( 20,302 ) ( 20,302 )

Balances, December 31, 2020 23,141,284 $ 23 ( 4,618,146 ) $ ( 47,692 ) $ 100,425 $ 32,454 $ 85,210

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Cash flows from operating activities

Adjustments to reconcile net income to net cash used in operating activities:

Net (loss) income $ ( 20,302 ) $ 35,537

Adjustments to reconcile net (loss) income to net cash used in operating activities:

Deferred income tax expense 3,491 8,655

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Operating lease expense 3,559 3,192

Stock-based compensation expense, net

Impairment of long-lived assets 26,103 —

Gain on settlement ( 1,129 ) —

Recovery of accounts receivable and other receivables ( 990 ) —

Stock-based compensation expense 2,496 2,011

Earnings from equity method investments ( 30,978 ) ( 69,176 )

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Related party receivables 794 37

Prepaid expenses and other assets

Costs incurred on uncompleted contracts

Prepaid expenses and other current assets 3,234 ( 2,200 )

Inventories, net 4,748 5,505

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Other current liabilities ( 520 ) ( 261 )

Billings on uncompleted contracts

Operating lease liabilities ( 2,200 ) ( 3,180 )

1 unchanged sentence

Distributions from equity method investees, return on investment 62,441 73,888

Net cash provided by (used in) operating activities

Net cash provided by operating activities 54,469 62,262

Years Ended December 31,

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Cash flows from investing activities

Distributions from equity method investees in excess of cumulative earnings

Acquisition of business, net of cash acquired

Acquisition of property, plant, equipment, and intangible assets, net ( 6,685 ) ( 7,851 )

Mine development costs ( 1,202 ) ( 4,726 )

Contributions to equity method investee

Acquisition of business, net of cash acquired — ( 661 )

Net cash used in investing activities ( 7,887 ) ( 13,238 )

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Principal payments on term loan ( 24,000 ) ( 30,000 )

Principal payments on finance lease obligations

Borrowings, net of debt discount - related party

Debt issuance costs paid

Borrowings from Paycheck Protection Program Loan 3,305 —

Dividends paid ( 4,979 ) ( 18,274 )

Repurchase of common shares

Principal payments on finance lease obligations ( 1,360 ) ( 1,354 )

Repurchase of shares to satisfy tax withholdings ( 537 ) ( 451 )

Net cash (used in) provided by financing activities

Decrease in Cash, Cash Equivalents and Restricted Cash

Repurchase of common shares ( 159 ) ( 5,793 )

Net cash used in financing activities ( 27,730 ) ( 55,716 )

Increase (decrease) in Cash, Cash Equivalents and Restricted Cash 18,852 ( 6,692 )

Cash, Cash Equivalents and Restricted Cash, beginning of year 17,080 23,772

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Cash paid for interest $ 2,489 $ 5,650

Cash paid for income taxes, net of refunds received

Cash (received) paid for income taxes $ ( 84 ) $ 4,308

Supplemental disclosure of non-cash investing and financing activities:

Acquisition consideration payable

Acquisition of property, plant and equipment under finance lease $ 158 $ —

Dividends payable $ 32 $ 284

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Advanced Emissions Solutions, Inc.

("ADES" or the "Company") is a Delaware corporation with its principal office located in Highlands Ranch, Colorado and operations located in Louisiana.

The Company is principally engaged in consumable mercury control options including powdered activated carbon ("PAC") and chemical technologies.

The Company's proprietary environmental technologies in the power generation and industrial ("PGI") market enable customers to reduce emissions of mercury and other pollutants, maximize utilization levels and improve operating efficiencies to meet the challenges of existing and pending emission control regulations.

The Company generates substantial earnings and tax credits under Section 45 ("Section 45 tax credits") of the Internal Revenue Code ("IRC") from its equity investments in certain entities and earns royalties for technologies that are licensed to Tinuum Group, LLC, a Colorado limited liability company ("Tinuum Group").

Such technologies allow Tinuum Group to provide their customers with various solutions to enhance combustion and reduced emissions of nitrogen oxide ("NO x ") and mercury from coal burned to generate electrical power.

The Company’s sales occur principally throughout the United States.

See Note 15 for additional information regarding the Company's operating segments.

On December 7, 2018 (the "Acquisition Date"), the Company acquired (the "Carbon Solutions Acquisition") 100% of the equity interests of ADA Carbon Solutions, LLC (“Carbon Solutions”).

Carbon Solutions is a manufacturer and seller of activated carbon ("AC") and the North American leader in mercury capture using PAC for the coal-fired power plant, industrial and water treatment markets.

Carbon Solutions also owns an associated lignite mine (the "Five Forks Mine") that supplies the raw material for the activated carbon plant.

Carbon Solutions was formed in 2008 as a 50/50 joint venture by the Company and Energy Capital Partners LLC.

The Company relinquished its ownership in 2011 as part of a legal settlement agreement as described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

The Company acquired Carbon Solutions primarily to expand the Company's product offerings in the mercury control industry and other complementary AC markets.

("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 containments, 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"), which the Company acquired on December 7, 2018 (the "Carbon Solutions Acquisition"), the Company manufactures and sells AC used to capture and remove contaminants for coal-fired power plants, industrial and water treatment markets.

Carbon Solutions also owns an associated lignite mine ("Five Forks 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 expect to significantly wind down their operations by the end of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 2021.

Principles of Consolidation

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All significant intercompany balances and transactions have been eliminated in consolidation.

All investments in partially owned entities for which the Company has greater than 20% ownership are accounted for using the equity method based on the legal form of the Company's ownership percentage and the applicable ownership percentage of the entity and are included in the Equity method investments line item in the Consolidated Balance Sheet .

As of December 31, 2020, the Company holds equity interests of 42.5 % and 50.0 % in Tinuum Group and Tinuum Services, LLC ("Tinuum Services"), respectively.

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Cash and cash equivalents include bank deposits and other highly liquid investments purchased with an original maturity of three months or less.

Restricted cash primarily consists of minimum cash balance requirements under the Term Loan and Security Agreement (the "Senior Term Loan") and is classified according to the period at which it will no longer be restricted.

Restricted cash primarily consists of minimum cash balance requirements under the Term Loan and Security Agreement (the "Senior Term Loan") and a surety bond indemnification agreement (the "Surety Agreement") associated with reclamation of a mine.

Restricted cash is classified consistent with the underlying obligation.

Receivables, net

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The allowance for doubtful accounts is based on historical experience, general economic conditions and the credit quality of specific accounts.

Inventories are stated at the lower of average cost or net realizable value and consist principally of raw materials and finished goods related to the Company's PAC and chemical product offerings.

Inventories, net

Inventories, net are stated at the lower of average cost or net realizable value and consist principally of raw materials and finished goods related to the Company's AC and chemical product offerings.

The cost of inventory is determined using the average cost method.

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Inventories are periodically reviewed for both potential obsolescence and potential declines in anticipated selling prices.

In this review, the Company makes assumptions about the future demand for and market value of the inventory, and based on these assumptions estimates the amount of any obsolete, unmarketable, slow moving or overvalued inventory.

In this review, the Company makes assumptions about the future demand for and market value of the inventory, and estimates the amount of any obsolete, unmarketable, slow moving or overvalued inventory.

The Company will write down the value of inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.

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The Company has developed technologies resulting in patents being granted by the U.S.

Patent and Trademark Office.

Patent and Trademark Office or other regulatory offices.

Legal costs associated with securing the patent are capitalized and amortized over the legal or useful life beginning on the patent filing date.

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As of December 31,

(in thousands, except years)

Weighted average amortization (in years)

Net of Accumulated Amortization

(in thousands, except years) Weighted average amortization (in years) Initial Cost (1) Net of Accumulated Amortization Initial Cost Net of Accumulated Amortization

Customer relationships 5 $ 835 $ 713 $ 2,200 $ 1,731

Patents 9 1,306 733 1,489 1,039

Developed technology 5 607 518 1,600 1,259

Trade name 2 36 — 300 140

Total $ 2,784 $ 1,964 $ 5,589 $ 4,169

(1) As of December 31, 2020, initial costs were inclusive of the write down of intangibles to fair value based on the impairment charge taken during the year ended December 31, 2020 and further described in Note 5.

Included in the Consolidated Statements of Operations is amortization expense related to intangible assets of $ 1.0 million and $ 1.0 million for the years ended December 31, 2020 and 2019, respectively.

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Whether or not the Company exercises significant influence with respect to an investee depends on an evaluation of several factors including, among others, representation on the investee company’s board of directors and the Company's ownership level.

Under the equity method of accounting, an investee company’s accounts are not reflected in the Company’s Consolidated Balance Sheet s and Consolidated Statements of Operations ;

however, the Company’s share of the earnings or losses of the investee company is reported in the Earnings from equity method investments line item in the Consolidated Statements of Operations , and the Company’s carrying value in an equity method investee company is reported in the Equity method investments line in the Consolidated Balance Sheet .

Under the equity method of accounting, an investee company’s accounts are not reflected in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations;

however, the Company’s share of the earnings or losses of the investee company is reported in the Earnings from equity method investments line item in the Consolidated Statements of Operations, and the Company’s carrying value in an equity method investee company is reported in the Equity method investments line in the Consolidated Balance Sheets.

When the Company receives distributions in excess of the carrying value of the investment and has not guaranteed any obligations of the investee and/or is not required to provide additional funding to the investee, the Company recognizes such excess distributions as equity method earnings in the period the distributions occur.

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During the years ended December 31, 2020 and 2019, the Company had no guarantees or requirements to provide additional funding to investees.

Additionally, when the Company's carrying value in an equity method investment is zero and the Company has not guaranteed any obligations of the investee and/or is not required to provide additional funding to the investee, the Company will not recognize its share of any reported losses by the investee until future earnings are generated to offset previously unrecognized losses.

As a result, equity income or loss reported on the Company's Consolidated Statements of Operations for certain equity method investees may differ from a mathematical calculation of net income or loss attributable to its equity interest based on

Additionally, when the Company's carrying value in an equity method investment is zero, and the Company has not guaranteed any obligations of the investee and/or is not required to provide additional funding to the investee, the Company will not recognize its share of any reported losses by the investee until future earnings are generated to offset previously unrecognized

Advanced Emissions Solutions, Inc.

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Notes to Consolidated Financial Statements

the percentage ownership of the Company's equity interest and the net income or loss attributable to equity owners as shown on the investee company's statements of operations.

Likewise, distributions from equity method investees are reported on the Consolidated Statements of Cash Flows as “return on investment” in Operating cash flows until such time as the carrying value in an equity method investee company is reduced to zero;

As a result, equity income or loss reported in the Company's Consolidated Statements of Operations for certain equity method investees may differ from a mathematical calculation of net income or loss attributable to its equity interest based on the percentage ownership of the Company's equity interest and the net income or loss attributable to equity owners as shown in the investee company's statements of operations.

Likewise, distributions from equity method investees are reported in the Consolidated Statements of Cash Flows as “return on investment” in 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" in Investing cash flows.

See Note 7 for additional information regarding the Company's equity method investments.

Investments in partially-owned subsidiaries for which the Company has less-than-20% ownership are accounted for in accordance with accounting principles generally accepted in the United States ("U.S.

GAAP") applicable to equity investments that do not qualify for the equity method of accounting.

Investments in partially-owned subsidiaries for which the Company has less-than-20% ownership are accounted for in accordance with accounting guidance applicable to equity investments that do not qualify for the equity method of accounting.

The Company evaluates these types of investments for changes in fair value and, if there is change, recognizes the change in the Consolidated Statement of Operations.

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When assets are retired, or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is credited or charged to income.

The Company performs an evaluation of the recoverability of the carrying value of its property, plant and equipment to determine if facts and circumstances indicate that their carrying value may be impaired and if any adjustment is warranted.

Impairment charges are recorded to Operating expenses in the Consolidated Statements of Operations.

Amortization of finance leased assets is included in depreciation expense and is calculated using the straight-line method over the term of the lease.

The Company records a right of use ("ROU") asset and related liability under a contract or part of a contract when it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Control over the use of an identified asset means that an entity has both the right to obtain substantially all of the economic benefits from the use of an identified asset and the right to direct the use of that identified asset.

The determination of whether a contract contains a lease may require significant assumptions and judgments.

For all classes of underlying assets, the Company does not separate nonlease components from lease components and accounts for each separate lease component and the nonlease components associated with that lease component as a single lease component.

The Company records lease liabilities and related ROU assets for all leases that have a term of greater than one year.

For short-term leases (leases with terms of less than one year), the Company expenses lease payments on a straight-line basis over the lease term.

Variable lease payments represent payments made by a lessee for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date of a lease other than the passage of time.

Variable lease payments that are based on an index or rate, calculated by using the index or rate that exists on the lease commencement date, are included in the measurement of a lease liability.

Certain of the Company’s operating leases for office facilities contain variable lease components that are not based on an index or rate, and the Company recognizes these payments as lease expense in the period in which the obligation for those payments is incurred.

The Company calculates lease liabilities based on the present value of lease payments discounted by the rate implicit in the lease or, if not readily determinable, the Company’s incremental borrowing rate.

Finance lease liabilities are subsequently measured by increasing the carrying amount to reflect interest expense on the finance lease liability and reducing the carrying amount of the lease liability to reflect lease payments made during the period.

Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability.

ROU assets under finance leases are amortized over the remaining lease term on a straight-line basis.

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 Consolidated Statement of Operations.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Operating lease liabilities are subsequently measured at the present value of the lease payments not yet paid discounted using the discount rate for the lease established at the inception date of the lease.

ROU assets under operating leases are subsequently measured at the amounts of the related operating lease liability, adjusted for, as applicable, prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment.

Lease expense from operating leases is recognized as a single lease cost over the remaining lease term on a straight-line basis.

Variable lease payments not included in operating lease liabilities are recognized as expense in the period in which the obligation for those payments is incurred.

Lease expense from operating leases is included in the "General and administrative" line in the Consolidated Statement of Operations.

Mine Development Costs

Mine development costs, which are related to the Five Forks Mine, are stated at cost less accumulated depletion and include acquisition costs, the cost of other development work and mitigation costs.

Mine development costs are related to the Five Forks Mine and are stated at cost less accumulated depletion and include acquisition costs, the cost of other development work and mitigation costs.

Costs are amortized over the estimated life of the related mine reserves, which is 16 years.

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.

Mine development costs are reported in the "Other long-term assets, net" line item on the Consolidated Balance Sheet.

Mine development costs are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheet.

Spare parts include critical spares required to support plant operations.

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Parts are recorded as maintenance expenses in the period in which they are consumed.

Spare parts are reported in the "Other long-term assets, net" line item on the Consolidated Balance Sheet.

Spare parts are reported in the "Other long-term assets, net" line item in the Consolidated Balance Sheet.

Revenue Recognition

On January 1, 2018, the Company adopted ASC 606 - Revenue from Contracts with Customers ("ASC 606") using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018.

The Company recognized the cumulative effect of initially applying ASC 606 to the opening balance of the Accumulated deficit.

See further discussion of the impact of the adoption of ASC 606 in Note 8 .

Effective with the Acquisition Date, Carbon Solutions adopted ASC 606 using the modified retrospective method applied to those contracts that were not completed as of December 7, 2018.

There was no impact to the consolidated financial statements of the Company upon Carbon Solutions’ adoption of ASC 606, except for a reclassification from revenues to cost of revenue for Carbon Solutions for freight costs billed to its customers in conjunction with product sales, which historically were recorded as revenues.

This reclassification of freight costs billed to customers to cost of revenue results in an offset to Carbon Solutions' actual freight costs recorded in cost of revenue and has no impact to Carbon Solutions' operating results.

This presentation is consistent with ADES' policy of reporting freight costs, net of freight costs billed to customers, under cost of revenue.

ADES adopted this policy effective with its adoption of ASC 606 on January 1, 2018.

The Company recognizes revenue from a contract with a customer when a performance obligation under the terms of a contract with a customer is satisfied, which is when the customer controls the promised goods or services that are transferred in satisfaction of the performance obligation.

Revenue is measured as the amount of consideration that is expected to be received

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

in exchange for transferring goods or providing services, and the transaction price is generally fixed and generally does not contain variable or noncash consideration.

Revenue is measured as the amount of consideration that is expected to be received in exchange for transferring goods or providing services, and the transaction price is generally fixed and generally does not contain variable or noncash consideration.

In addition, the Company’s contracts with customers generally do not contain customer refund or return provisions or other similar obligations.

Transfer of control and satisfaction of performance obligations are further discussed in each of the revenue components listed below.

The Company uses estimates and judgments in determining the nature and timing of satisfaction of performance obligations, the standalone selling price ("SSP") of performance obligations and the allocation of the transaction price to multiple performance obligations.

The Company’s principal revenue components are Consumables sales and License royalties.

Consumables are comprised of the sale of AC and chemicals for mercury capture for the coal-fired power plant, industrial and water treatment markets.

Customer contracts for consumables are short duration and performance obligations generally do not extend beyond one year.

Certain customer contracts for consumables are comprised of evaluation tests of the Company's consumables' effectiveness and efficiency in reducing emissions.

These contracts entail the delivery of consumables to the customer and the Company's evaluation of results of emissions reduction over the term of the contract.

Under these types of arrangements, which are generally for durations that are short term, the Company has determined that the customer is simultaneously receiving benefits of emissions reduction from the consumption of the consumables over the testing period and this represents a single performance obligation that is satisfied over time.

This determination may require significant judgment.

The Company recognizes revenue over time using an input model that is generally based on the cost of consumables used by the customer during the testing period.

The use of an input model and the use of total costs as the measure of progress in the satisfaction of the performance obligations may require significant judgment.

In addition, under these types of contracts, the Company has determined that the services performed and related costs incurred by the Company during the testing period represent costs to fulfill a contract.

The Company’s revenue components are Consumables sales and License royalties.

The Company is principally engaged in the sale of consumable products that utilize activated carbon ("AC") and chemical based technologies to a broad range of customers, including coal-fired utilities, water treatment plants, and other diverse markets.

Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants and thus maximize utilization levels and improve operating efficiencies to meet the challenges of existing and potential regulations.

Generally, customer contracts for consumables are short duration and performance obligations generally do not extend beyond one year.

License royalties, related party

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The amount of M-45 Royalties recognized is generally based on a percentage of pre-tax margins (as defined in the M-45 License) of the RC facilities using the M-45 Technology.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Practical Expedients and Exemptions

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Sales and other taxes that are collected concurrently with revenue-producing activities are excluded from revenue.

The Company has elected to account for freight costs as activities to fulfill the promise to transfer the goods, and therefore these activities are also not assessed as a separate service to customers.

The Company accounts for freight costs as activities to fulfill the promise to transfer the goods, and therefore these activities are also not assessed as a separate service to customers.

The Company accounts for all shipping and handling activities that occur after control of the related good transfers as fulfillment activities.

These activities are included in Cost of Revenue line items of the Consolidated Statement of Operations.

These activities are included in Cost of Revenue line items om the Consolidated Statement of Operations.

The Company generally expenses sales commissions when incurred because the amortization period of the asset that the Company would have recognized is one year or less.

These costs are recorded in sales and marketing expenses in the General and administrative line item of the Consolidated Statement of Operations.

These costs are recorded in sales and marketing expenses in the Depreciation, amortization, depletion and accretion line item on the Consolidated Statement of Operations.

Cost of Revenue

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The Company records estimated contract losses, if any, in the period they are determined.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Payroll and Benefits

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Research and development costs are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.

During the years ended December 31, 2020 and 2019, the Company recorded research and development costs of $ 1.0 million and $ 0.2 million, respectively.

Asset Retirement Obligations

Reclamation obligations, which are related to the Five Forks Mine, are recognized when incurred and recorded as liabilities at fair value.

The liability is accreted over time through periodic charges to earnings.

In addition, a corresponding asset retirement cost is capitalized as part of the asset’s carrying value and amortized over the life of the related asset.

Reclamation costs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs.

The estimated reclamation obligation is based on when spending for an existing disturbance is expected to occur.

The Company reviews, on an annual basis, unless otherwise deemed necessary, the reclamation obligation for the Five Forks Mine.

Asset retirement obligations ("ARO") are comprised of mine reclamation activities required under operating agreements related to the Five Forks Mine and the Marshall Mine (as defined in Note 3) and are recognized when incurred and recorded as liabilities at fair value.

An ARO is accreted over time through periodic charges to earnings.

Accounting for reclamation and remediation obligations requires the Company to make estimates of future costs unique to a specific mining operation that the Company expects to incur to complete the reclamation and remediation work required to comply with existing laws and regulations.

AROs are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs.

Five Forks Mine

For the Five Forks Mine ARO, a corresponding ARO asset is depreciated over its estimated life.

Reclamation costs related to the Five Forks Mine are allocated to expense over the life of the related mine assets, and are periodically adjusted to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs.

Remediation costs for the Five Forks Mine are accrued based on management’s best estimate at the end of each period of the costs expected to be incurred.

Such cost estimates may include ongoing care, maintenance and monitoring costs.

Reclamation obligations are based on the timing of estimated spending for an existing environmental disturbance.

On an annual basis, unless otherwise deemed necessary, the Company reviews its estimates and assumptions of the Five Forks Mine ARO.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company’s mining activities at the Five Forks Mine are subject to various domestic laws and regulations governing the protection of the environment.

The Company conducts its mining activities to protect public health and the environment and believes its operations are in compliance with applicable laws and regulations in all material respects.

The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

Estimated future reclamation costs are based principally on current legal and regulatory requirements.

Marshall Mine (refer to Note 3)

Reclamation costs related to the Marshall Mine are largely based on a capped fee structure, based on the initial estimate of the total costs of reclamation, which provides for certain contingencies that could increase or decrease the reclamation fee based on the reclamation agreement executed between the Company and the Marshall Mine operator.

The timing of payments may vary and the Company accounts for these timing differences in valuing the reclamation as well as changes in actual reclamation costs on a quarterly basis.

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Under this method, deferred tax assets and liabilities are determined on the basis of differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

The effect of a change in tax rates on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date.

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The Company records uncertain tax positions on the basis of a two-step process whereby (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records interest expense due to the Company's share of Tinuum Group's equity method earnings for Refined Coal ("RC") facilities, in which the related lease income or sale are treated as installment sales for federal income tax purposes.

The Company records interest expense due to the Company's share of Tinuum Group's equity method earnings for Refined Coal ("RC") facilities, in which the sale of an RC facility or lease income generated from an RC facility are treated as installment sales for federal income tax purposes.

IRS section 453A requires taxpayers using the installment method to pay an interest charge on the portion of the tax liability that is deferred under the installment method.

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Forfeitures are recognized when incurred.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the Consumables, Cost of revenues and Payroll and benefits line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statement of Operations.

When a sufficient amount of available earnings exists at the time of a dividend declaration, dividends are charged to Retained earnings when declared.

If a sufficient amount of available earnings is not available, dividends declared are charged as a reduction to Additional paid-in capital.

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.

The Company's restricted stock awards ("RSA's") granted prior to December 31, 2016 contain non-

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

When a sufficient amount of available earnings exists at the time of declaration, dividends are charged as a reduction to Retained earnings in the Consolidated Balance Sheet when declared.

If sufficient Retained earnings is not available, dividends declared are charged as a reduction to Additional paid-in capital in the Consolidated Balance Sheet .

Earnings (Loss) Per Share

The Company's restricted stock awards ("RSA's") granted prior to December 31, 2016 contain non-forfeitable rights to dividends or dividend equivalents and are deemed to be participating securities.

forfeitable rights to dividends or dividend equivalents and are deemed to be participating securities ("Participating Securities").

RSA's granted subsequent to December 31, 2016 do not contain non-forfeitable rights to dividends and are not deemed to be Participating Securities.

Under the two-class method, net income (loss) for the period is allocated between common stockholders and the holders of the participating securities based on the weighted-average of common shares outstanding during the period, excluding participating, unvested RSA's ("common shares"), and the weighted-average number of participating, unvested RSA's outstanding during the period, respectively.

The allocated, undistributed income for the period is then divided by the weighted-average number of common shares and participating, unvested RSA's outstanding during the period to determine basic earnings per common share and participating security for the period, respectively.

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 Consolidated Statements of Operations.

As permitted, the Company has elected not to separately present basic or diluted earnings per share attributable to Participating Securities in the Consolidated Statement of Operations.

Diluted earnings per share is computed in a manner consistent with that of basic earnings per share, while considering other potentially dilutive securities.

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 contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares").

Potentially dilutive securities consist of both unvested, Participating Securities and non-participating RSA's, as well as outstanding options to purchase common stock ("Stock Options") and contingent performance stock units ("PSU's") (collectively, "Potential dilutive shares").

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.

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(in thousands, except per share amounts) 2020 2019

Net (loss) income $ ( 20,302 ) $ 35,537

Dividends and undistributed income allocated to Participating Securities ( 5 ) 44

Income attributable to common stockholders

(Loss) income attributable to common stockholders $ ( 20,297 ) $ 35,493

Basic weighted-average number of common shares outstanding 18,044 18,154

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Diluted weighted-average shares outstanding 18,044 18,372

Earnings per share - basic

Earnings per share - diluted

For the years ended December 31, 2019 and 2018 , options to purchase 0.3 million and 0.3 million shares of common stock for each of the years presented were outstanding but were no t included in the computation of diluted net income per share because the exercise price exceeded the average price of the underlying shares and the effect would have been anti-dilutive.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Earnings (loss) per share - basic $ ( 1.12 ) $ 1.96

Earnings (loss) per share - diluted $ ( 1.12 ) $ 1.93

For the years ended December 31, 2020 and 2019, 0.6 million and 0.3 million weighted-average equity instruments, respectively, were outstanding but were not included in the computation of diluted earnings per share because their effect would have been anti-dilutive.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with U.S.

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S.

GAAP") requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.

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The Company makes assumptions on the following significant financial statement components including:

business combinations;

• business combinations, including asset acquisitions;

• the carrying value of its long-lived assets;

• the carrying value of its intangible assets;

asset retirement obligation;

• income taxes, including the valuation allowance for deferred tax assets and uncertain tax positions.

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 change, which could also

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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 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

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As of December 31, 2020, Tinuum Group has 23 invested RC facilities of which 9 are leased to a single customer.

A majority of these leases are periodically renewed and the loss of this customer by Tinuum Group would have a significant adverse impact on its financial position, results of operations and cash flows, which in turn would have material adverse impact on the Company’s financial position, results of operations and cash flows.

Both Tinuum Group and Tinuum Services expect to significantly wind down their operations by the end of 2021 due to the expected expiration of the Section 45 tax credit period as of December 31, 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.

Reclassifications

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New Accounting Guidance

Recently Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), which created ASC Topic 842 - Leases ("ASC 842"), requiring lessees to recognize a right of use asset and related lease liability for those leases classified as operating leases at the commencement date and have lease terms of more than 12 months.

ASC 842 retains the distinction between finance leases (formerly defined as capital leases) and operating leases.

On January 1, 2019, the Company adopted ASC 842 retrospectively beginning with the date of adoption.

Under this adoption method, the application date is the beginning of the reporting period in which the Company first applies the provisions of ASC 842.

Accordingly, the Company’s reporting for the comparative periods presented in the financial statements and related disclosures continues in accordance with legacy U.S.

GAAP under ASC Topic 840 - Leases ("ASC 840").

The adoption of ASC 842 had no impact to the opening balance of Retained earnings.

As of the adoption date, the Company recorded $7.0 million and $7.0 million of "right of use" ("ROU") assets and incremental lease liabilities, respectively.

The cumulative effect of the change from the adoption of ASC 842 to the Consolidated Balance Sheet as of January 1, 2019 is shown in the table that follows:

Balance as of

(in thousands)

December 31, 2018

January 1, 2019

Balance Sheet

Other long-term assets

Other liabilities

Other long-term liabilities

See Note 7 for additional disclosures required under ASC 842 in the year of adoption.

As of January 1, 2019, Tinuum Group adopted ASC 606 and ASC 842.

As a result of Tinuum Group’s adoption of these pronouncements, the Company recorded a cumulative effect increase of $27.4 million to Retained earnings as of January 1, 2019, based on the Company's ownership percentage of Tinuum Group's cumulative effect adjustment, and increased its investment balance in Tinuum Group in the amount of $37.2 million and established a deferred tax liability of $9.8 million .

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

a result of the increase in the investment balance in Tinuum Group, for the year ended December 31, 2019 , the Company recognized equity earnings in Tinuum Group based on its pro-rata share of Tinuum Group’s net income rather than based on cash distributions received as had been required in prior periods as a result of the cumulative cash distributions exceeding the cumulative pro-rata share of Tinuum Group's net income.

Not yet Adopted

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The Company is currently evaluating the provisions of this guidance and assessing its impact on the Company's financial statements and disclosures and does not believe this standard will have a material impact on the Company's financial statements and disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13").

The amendments in ASU 2018-13 improve the effectiveness of fair value measurement disclosures and modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement ("Topic 820"), based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8:

Notes to Financial Statements, including the consideration of costs and benefits.

ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

All other amendments should be applied retrospectively to all periods presented upon their effective date.

Early adoption is permitted upon issuance of this Update.

An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date.

The Company has completed its evaluation of ASU 2018-13 and does not believe this standard will have a material impact on the Company's financial statement disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes ("ASU 2019-12").

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Note 2 - Acquisition

As described in Note 1 , on the Acquisition Date, the Company completed the Carbon Solutions Acquisition for a total purchase price of $75.0 million (the "Purchase Price").

The results of Carbon Solutions have been included in the Company’s consolidated financial statements since the Acquisition Date.

The fair value of the purchase consideration totaled $66.5 million and consisted of cash of $65.8 million and an additional purchase adjustment amount payable to Carbon Solutions' secured lender of $0.7 million , which was paid in March 2019.

The Purchase Price was adjusted by assumed debt and contractual commitments of $11.8 million , and less cash acquired of $3.3 million .

The Company also paid $4.5 million in acquisition-related costs (or transaction costs) during the year ended December 31, 2018.

The Company funded the cash consideration from cash on hand and the proceeds from the Senior Term Loan in the principal amount of $70.0 million , as more fully described in Note 6 .

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 agrees to sell and deliver to Cabot, and Cabot agrees to purchase and accept from the Company certain lignite-based AC products ("Furnace Products").

The term of the Supply Agreement is for 15 years with 10 -year renewal terms that are automatic unless either party provides three years prior notice of intention not to renew before the end of any term.

In addition to the sale by the Company and purchase by Cabot of Furnace Products, the Company and Cabot have agreed to additional terms whereby Cabot will reimburse the Company for certain capital expenditures incurred by the Company that are necessary to manufacture the Furnace Products.

Reimbursements will be in the form of revenues earned from capital expenditures incurred that will benefit both the Company and Cabot (referred to as "Shared Capital") and capital expenditures incurred that will benefit Cabot exclusively (referred to as "Specific Capital").

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

The following table summarizes the final Purchase Price allocation.

Subsequent to December 31, 2018 , the Company completed additional analysis and adjustments were made to the preliminary Purchase Price allocations as noted in the table below:

Fair value of assets acquired:

As Originally Reported

Prepaid expenses and other current assets

Revenues are earned on Shared Capital ("Shared Capital revenues") based on the percentage of planned Furnace Products produced and sold divided by the Company’s total products produced and sold for each year multiplied by a factor, which is based on the cost of Shared Capital assets placed in service amortized as an annuity over the expected asset life (lives) using an interest rate that is mutually agreed to by both the Company and Cabot.

Shared Capital revenues are recognized and billable beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Shared Capital asset(s).

Revenues are earned on Specific Capital ("Specific Capital revenues") and are based on a factor, which is based on the cost of Specific Capital assets placed in service amortized as an annuity over five years using an interest rate that is mutually agreed to by both the Company and Cabot.

Specific Capital revenues are recognized beginning on the first day of a half year (either January 1 or July 1 of a calendar year) following the placed in service date of a Specific Capital asset(s) and 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 payments for Specific Capital.

Note 3 - Acquisition of Marshall Mine

Concurrently with the execution of the Supply Agreement, on September 30, 2020, the Company entered into an agreement to purchase (the "Mine Purchase Agreement") from Cabot 100 % of the membership interests in Marshall Mine, LLC (the "Marshall Mine Acquisition") for a nominal purchase price.

Marshall Mine, LLC owns a lignite mine located outside of Marshall, Texas (the "Marshall Mine").

The Company independently determined to immediately commence activities to shutter the Marshall Mine and will incur the associated reclamation costs.

In conjunction with the execution of the Supply Agreement and the Mine Purchase Agreement, on September 30, 2020, the Company entered into a reclamation contract (the "Reclamation Contract") with a third party that provides a capped cost, subject to certain contingencies, in the amount of approximately $ 19.7 million plus an obligation to pay certain direct costs of approximately $ 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.

As the owner of the Marshall Mine, the Company was required to post a surety bond to ensure performance of its reclamation activities.

On September 30, 2020, 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.

The Bond will remain in place until the Marshall Mine is fully shuttered, and it may be reduced in amount from time to time as the Company progresses with its reclamation activities.

For the obligations due under the Reclamation Contract, the Company was required to post collateral of $ 5.0 million as of September 30, 2020 and to post an additional $ 5.0 million as of March 31, 2021.

The Marshall Mine Acquisition included the acquisition of certain assets that will be consumed and the assumption of certain liabilities that will be paid in reclamation of the Marshall Mine, in addition to the incurrence of an obligation for the Reclamation Costs.

The Company determined that the Marshall Mine Acquisition should be accounted for as an asset acquisition as it did not meet the definition of a business.

The Company's conclusion was based on the Marshall Mine not having any economic reserves, as the Company commenced full reclamation as of September 30, 2020, and therefore lacked inputs.

As the Marshall Mine Acquisition represents a transaction with a customer of net assets acquired and liabilities assumed from Cabot, the Company has 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 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 amortized on a straight-line basis as a reduction to revenue over the expected 15-year contractual period of the Supply Agreement.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The Company paid a nominal cash amount to Cabot in the form of cash for the Marshall Mine and also assumed liabilities whose fair value exceeded the fair value of assets acquired.

The net assets acquired and liabilities assumed and the additional assets recorded for the Marshal Mine Acquisition as of September 30, 2020 are shown in the table below.

Subsequent to this date, the Company completed additional analysis and adjustments were made as noted in the table below:

(in thousands) As Originally Reported Adjustments As Adjusted

Assets acquired:

Receivables $ — $ 513 $ 513

Property, plant and equipment 3,863 — 3,863

Mine leases and development

Mine reclamation asset

Intangible assets

Amount attributable to assets acquired

Fair value of liabilities assumed:

Accounts payable

Accrued liabilities

Equipment lease liabilities

Mine reclamation liability

Other liabilities

Amount attributable to liabilities assumed

Net assets acquired

Adjustments to the preliminary Purchase Price allocation primarily relate to changes in fair values assigned to property, plant and equipment, intangible assets, mine reclamation liability and the related mine reclamation asset as a result of the final valuation report from the Company's third-party valuation firm issued in May 2019.

During the year ended December 31, 2019 based on new information of facts and circumstances that existed as of the Acquisition Date, the Company revised its estimates used as of the Acquisition Date related to the net realizable value of certain finished goods inventory items as well as values assigned to certain prepaid and accrued expense items.

The adjustments were recorded as of June 30, 2019 and were included in the Consolidated Balance Sheet as of that date and the resultant impact to the Statement of Operations was reflected for the year ended December 31, 2019.

The following table represents the intangible assets identified as part of the Carbon Solutions Acquisition:

(in thousands)

Weighted Average Useful Life (years)

Customer relationships

Developed technology

Total intangibles acquired

Spare parts 100 — 100

Liabilities assumed:

Accounts payable and accrued expenses ( 673 ) 160 ( 513 )

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 the Marshall Mine entity as a VIE, and determined that because of its structure and closing-stage status, it does not have sufficient equity at-risk and would not likely be able to obtain additional subordinated financial support to complete its closing stage obligations.

The Company purchased all of the membership interests in Marshall Mine, LLC and has determined that it meets the definition of a VIE and that the Company is the primary beneficiary.

Therefore, Marshall Mine, LLC’s assets and liabilities are consolidated as of December 31, 2020.

Note 4 - Marshall Mine Asset Retirement Obligation and related Cabot Receivable

Asset Retirement Obligation

In connection with the Supply Agreement, Mine Purchase Agreement and the Reclamation Contract, the Company assumed the obligation to reclaim and restore the land associated with the Marshall Mine.

The Company determined that the Marshall Mine does not have any remaining economic reserves.

As of September 30, 2020, the Company recorded an ARO (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 %.

Cabot Receivable

As previously disclosed, under the terms of the related Supply Agreement, Cabot is obligated to pay Reclamation Reimbursements to the Company for $ 10.2 million of the Reclamation Costs, inclusive of interest.

As of September 30, 2020, the Company recorded the Cabot Receivable for the Reclamation Reimbursements at its estimated fair value, which was measured using a discounted cash flows valuation model that considers the estimated credit risk associated with the obligor’s (Cabot’s) future performance.

Interest is accreted on a monthly basis and recognized as interest income.

There were no significant related fees or costs associated with the Cabot Receivable.

As of September 30, 2020, 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.

Allowances for this asset are assessed periodically, and no allowance was deemed necessary as of December 31, 2020.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

The amounts of revenues and income before income taxes for the period from the Acquisition Date to December 31, 2018 for Carbon Solutions are as follows:

(in thousands)

Year ended December 31, 2018

Unaudited Pro Forma Financial Information

The following represents the pro forma effects of the Carbon Solutions Acquisition as if it had occurred on January 1, 2017.

The pro forma pre-tax income for 2018 has been calculated after applying the Company’s accounting policies in effect for that year.

In addition, pro forma net income includes:

(1) the impact on Carbon Solutions of the adoption of ASC 606 effective January 1, 2018, which resulted in a reclassification of $5.9 million from Revenues to Cost of Revenue for freight costs billed to customers and had no impact to income from operations;

(2) the reduction in depletion, depreciation and amortization resulting from the purchase price adjustments to Property, plant and equipment and Mine development costs;

(3) the adjustment to interest expense from the combination of the Senior Term Loan that was used to fund the Carbon Solutions Acquisition and the elimination of certain debt of Carbon Solutions as a result of pay-offs by the Company as of the Acquisition Date;

and (4) the removal of $9.7 million in transaction costs incurred in 2018, together with the income tax effect on (1) through (4).

The pro forma results do not include any anticipated synergies or other expected benefits of the Carbon Solutions Acquisition.

The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the Carbon Solutions Acquisition been consummated as of January 1, 2017.

Year ended December 31,

(in thousands)

Note 3 - Inventories, net

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of December 31, 2019 and 2018 :

As of December 31,

Note 5 - Impairment

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 long-lived asset groups, 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 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 were comprised of its manufacturing plant and related assets and its lignite mine assets.

The estimated undiscounted cash flows from the Asset Group was $ 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.

The Impairment Charge is reflected as "Impairment of long-lived assets" in the Consolidated Statement of Operations for the year ended December 31, 2020, and was allocated to the APT segment.

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)

Product inventory (1)

Raw material inventory

(1) As of December 31, 2019 and 2018 , Product inventory includes zero and $5.0 million , respectively, attributed to the increase in fair value of inventory acquired from the Carbon Solutions Acquisition.

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 using Level 3 inputs.

The cash flows are those 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 historically low 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.

Note 6 - COVID-19

In response to the COVID-19 outbreak, in March 2020, the federal government passed the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").

The CARES Act provided, among other things, the creation of the Paycheck Protection Program ("PPP"), which is sponsored and administered by the U.S.

Small Business Administration ("SBA").

In June 2020, the Paycheck Protection Program Flexibility Act of 2020 (the "PPPFA") was signed into law and established the payment dates in the event that amounts borrowed under the PPP are not forgiven.

On April 20, 2020, the Company entered into a loan (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 matures April 21, 2022.

The PPP Loan principal may be forgiven subject to the terms of the PPP and approval by the SBA.

The Company recorded the PPP Loan as a debt obligation and is accruing interest over the term of the PPP Loan.

There is no assurance that the PPP Loan will be forgiven.

The interest rate on the PPP Loan is 1.0 %.

The PPP Loan is unsecured and contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or BOK, or breaching the terms of the PPP Loan.

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment against the Company.

Under the PPPFA, monthly payments of principal and interest commence on the later of 10 months following the "covered period" (as defined in the PPPFA) or the date that BOK notifies the Company that the SBA has notified BOK that all or a portion of the PPP Loan has not been forgiven.

In January 2021, the Company submitted its application to the SBA for

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Note 4 - Property, Plant and Equipment

The carrying basis and accumulated depreciation of property, plant and equipment at December 31, 2019 and 2018 are:

Life in Years

As of December 31,

(in thousands)

Land and land improvements

Plant and operating equipment

Furniture and fixtures

Machinery and equipment

Leasehold improvements

Construction in progress

Less accumulated depreciation

Total property, plant and equipment, net

Included in plant and operating equipment as of December 31, 2019 and 2018 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in finance lease obligations and capital lease obligations, respectively, in the Consolidated Balance Sheet.

The total amount recorded for right of use ("ROU") assets as of December 31, 2019 related to finance lease obligations was $5.9 million , net of accumulated depreciation of $2.3 million .

The total amount recorded for assets under capital lease obligations as of December 31, 2018 was $8.1 million , net of accumulated depreciation of $0.1 million .

Depreciation expense for the years ended December 31, 2019 and 2018 was $6.0 million and $0.5 million , respectively.

forgiveness of the PPP Loan, and the Company is awaiting the SBA's response on its application for forgiveness.

Accordingly, the Company has determined that any amounts due under the PPP Loan would commence in August 2021 and, as of December 31, 2020, has classified a portion of the PPP Loan principal and accrued interest as current in the Consolidated Balance Sheet.

The CARES Act also provided 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 December 31, 2020, the Company has deferred $ 0.4 million of payroll tax payments under the CARES Act.

Note 7 - Equity Method Investments

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("GS"), own the remaining 42.5 % and 15.0 %, respectively of Tinuum Group.

GSFS' ownership interest is in the form of Class B units that do not have voting rights but provide certain preferences over ADA and NexGen as to liquidation and profit distribution, including a guaranteed 15% annual return on GSFS' unrecovered investment balance, which is calculated as the original GSFS investment, plus a 15% annual return thereon, less any distributions, including the allocation of Section 45 tax credits to the members.

In February 2018, the unrecovered investment balance associated with the Class B units was repaid in full.

GSFS' ownership interest is in the form of Class B units that do not have voting rights but provide certain preferences over ADA and NexGen as to liquidation and profit distribution.

The Company has determined that Tinuum Group is a VIE, however, the Company does not have the power to direct the activities that most significantly impact Tinuum Group's economic performance and has therefore accounted for the investment under the equity method of accounting.

The Company determined the voting partners of Tinuum Group have identical voting rights, equity control interests and board control interests, and therefore, concluded that the power to direct the activities that most significantly impact Tinuum Group's economic performance was shared.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The following tables summarize the assets, liabilities and results of operations of Tinuum Group:

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(in thousands) 2020 2019

Gross profit $ 6,649 $ 104,976

Operating, selling, general and administrative expenses 58,008 37,641

Income from operations

Other expenses

Class B preferred return

(Loss) income from operations ( 51,359 ) 67,335

Other income (expense) 17,260 ( 95 )

Loss attributable to noncontrolling interest 91,501 78,544

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As shown above, the Company reported earnings from its equity investment in Tinuum Group of $ 24.4 million and $ 60.3 million for the years ended December 31, 2020 and 2019, respectively.

The carrying value of the Company's investment in Tinuum Group shall be zero as long as the cumulative amount of distributions received from Tinuum Group exceeds the Company's cumulative pro-rata share of Tinuum Group's net income available to Class A members.

For periods during which the ending balance of the Company's investment in Tinuum Group is zero , the Company only recognizes equity earnings from Tinuum Group to the extent that cash distributions are received from Tinuum Group during the period.

For periods during which the ending balance of the Company's investment is greater than zero (e.g., when the cumulative earnings in Tinuum Group exceeds cumulative cash distributions received), the Company recognizes its pro-rata share of Tinuum Group's net income available to Class A members for the period, less any amount necessary to recover the cumulative earnings short-fall balance as of the end of the immediately preceding period.

As shown in the table below, the Company’s carrying value in Tinuum Group for the years ended December 31, 2019 and 2018 were $32.3 million and zero , respectively.

The amount of equity earnings or loss reported on the Consolidated Statement of Operations may differ from a mathematical calculation of earnings or loss attributable to the equity interest based upon the factor of the equity interest and the net income or loss available to Class A members as shown on Tinuum Group’s statement of operations.

Additionally, for periods during which the carrying value of the Company's investment in Tinuum Group is greater than zero, distributions from Tinuum Group are reported on the Consolidated Statements of Cash Flows as "Distributions from equity method investees, return on investment" in Operating cash flows.

For periods during which the carrying value of the Company's investment in Tinuum Group is zero, such cash distributions are reported on the Consolidated Statements of Cash Flows as "Distributions from equity method investees in excess of investment basis" in Investing cash flows.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

As shown in the table below, the Company’s carrying value in Tinuum Group for the years ended December 31, 2020 and 2019 were $ 3.4 million and $ 32.3 million, respectively.

The following table presents the Company's investment balance, equity earnings, cash distributions and cash distributions in excess of the investment balance for the years ended December 31, 2019 and December 31, 2020 ( in thousands ):

Investment balance

ADES equity earnings (loss)

Cash distributions

Memorandum Account:

Description Date(s) Investment balance ADES equity earnings (loss) Cash distributions Memorandum Account:

Cash distributions and equity loss in (excess) of investment balance

Beginning balance 12/31/2018 $ — $ — $ — $ ( 1,672 )

ADES proportionate share of net income from Tinuum Group (1)

2018 activity

Recovery of cash distributions in excess of investment balance (prior to cash distributions)

2018 activity

Cash distributions from Tinuum Group

2018 activity

Adjustment for current year cash distributions in excess of investment balance

2018 activity

Total investment balance, equity earnings (loss) and cash distributions

Impact of adoption of accounting standards (1)

2019 activity 37,232 — — —

ADES proportionate share of net income from Tinuum Group

2019 activity

Recovery of cash distributions in excess of investment balance (prior to cash distributions)

2019 activity

Cash distributions from Tinuum Group

2019 activity

ADES proportionate share of net income from Tinuum Group 2019 activity 61,958 61,958 — —

Recovery of cash distributions in excess of investment balance (prior to cash distributions) 2019 activity ( 1,672 ) ( 1,672 ) — 1,672

Cash distributions from Tinuum Group 2019 activity ( 65,238 ) — 65,238 —

Total investment balance, equity earnings (loss) and cash distributions 12/31/2019 $ 32,280 $ 60,286 $ 65,238 $ —

ADES proportionate share of net income from Tinuum Group 2020 activity 24,396 24,396 — —

Cash distributions from Tinuum Group 2020 activity ( 53,289 ) — 53,289 —

Total investment balance, equity earnings and cash distributions 12/31/2020 $ 3,387 $ 24,396 $ 53,289 $ —

(1) The amounts of the Company's 42.5% proportionate share of net income as shown in the table above differ from mathematical calculations of the Company’s 42.5% equity interest in Tinuum Group multiplied by the amounts of Net Income available to Class A members as shown in the table above of Tinuum Group's results of operations due to adjustments related to the Class B preferred return.

(2) As discussed in Note 1, Tinuum Group adopted ASC 606 and ASC 842 as of January 1, 2019.

(1) Tinuum Group adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") and ASC Topic 842, Leases ("ASC 842") as of January 1, 2019.

As a result of Tinuum Group’s adoption of these standards, the Company recorded a cumulative adjustment of $ 27.4 million, net of the impact of income taxes, related to the Company's percentage of Tinuum Group's cumulative effect adjustment that increased the Company's Retained earnings as of January 1, 2019.

Additional information related to Tinuum Group pursuant to Regulation S-X Rule of the Securities and Exchange Act of 1934 is included in Item 15 - "Exhibits and Financial Statement Schedules" ("Item 15") of this Report.

Additional information related to Tinuum Group is included in Item 15 - "Exhibits and Financial Statement Schedules" ("Item 15") of this Report.

Tinuum Services, LLC

In 2010, the Company, together with NexGen, formed Tinuum Services for the purpose of operating and maintaining RC facilities, including those RC facilities leased or sold to third parties.

The Company has determined that Tinuum Services is not a VIE and has evaluated the consolidation analysis under the Voting Interest Model.

The Company has a 50% voting and economic interest in Tinuum Services, which is equivalent to the voting and economic interest of NexGen.

Therefore, as the Company does not hold greater than 50% of the outstanding voting interests, either directly or indirectly, it has accounted for the investment under the equity method of accounting.

The Company has determined that Tinuum Services is not a VIE and has evaluated Tinuum Services for potential consolidation under the voting interest model.

Because the Company does not own greater than 50 % of the outstanding voting shares, it has accounted for its investment in Tinuum Services under the equity method of accounting.

As of December 31, 2020 and 2019, the Company’s investment in Tinuum Services was $ 4.2 million and $ 6.8 million, respectively.

9 unchanged sentences

Non-current liabilities $ 6,451 $ 55,277

Equity $ 8,483 $ 13,626

Noncontrolling interests $ 145,214 $ 182,771

1 unchanged sentence

(in thousands) 2020 2019

Gross loss $ ( 87,723 ) $ ( 102,172 )

Operating, selling, general and administrative expenses 171,095 199,691

2 unchanged sentences

Loss attributable to noncontrolling interest 273,262 321,077

Net income $ 13,162 $ 17,792

ADES equity earnings from Tinuum Services $ 6,582 $ 8,896

1 unchanged sentence

These losses do not impact the Company's equity earnings from Tinuum Services as 100 % of those losses are attributable to a noncontrolling interest and eliminated in the calculations of Tinuum Services' net income attributable to the Company's interest.

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 Consolidated Balance Sheet and indicates the Company's maximum exposure to loss:

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 Consolidated Balance Sheets and indicates the Company's maximum exposure to loss:

As of December 31,

9 unchanged sentences

Notes to Consolidated Financial Statements

The following table details the components of the Company's respective earnings or loss from equity method investments included in the Earnings from equity method investments line item on the Consolidated Statements of Operations :

Year ended December 31,

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Earnings from Tinuum Services 6,582 8,896

Loss from other

Earnings (loss) from other — ( 6 )

Earnings from equity method investments $ 30,978 $ 69,176

The following table details the components of the cash distributions from the Company's respective equity method investments included in the Consolidated Statements of Cash Flows .

Distributions from equity method investees are reported on the Consolidated Statements of Cash Flows as “return on investment” in 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” in Investing cash flows.

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 in the Consolidated Statements of Cash Flows.

Distributions from equity method investees are reported in the Consolidated Statements of Cash Flows as "return on investment" in 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.

Year ended December 31,

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Distributions from equity method investees, return on investment

Tinuum Group $ 53,289 $ 65,238

Tinuum Services 9,152 8,650

Included in Operating Cash Flows $ 62,441 $ 73,888

Distributions from equity method investees in excess of cumulative earnings

Included in Investing Cash Flows

During the years ended December 31, 2019 and 2018 , the Company, in the aggregate, made contributions to equity method investments of zero and $0.8 million , respectively.

Note 8 - Acquisition of ADA Carbon Solutions

On December 7, 2018 (the "Acquisition Date"), the Company completed the Carbon Solutions Acquisition.

The Company acquired Carbon Solutions primarily to expand the Company's product offerings in the consumable air treatment markets.

The Company completed the Carbon Solutions Acquisition for a total purchase price of $ 75.0 million (the "Purchase Price").

The fair value of the purchase consideration totaled $ 66.5 million and consisted of cash of $ 65.8 million and an additional purchase adjustment amount payable to Carbon Solutions' secured lender of $ 0.7 million, which was paid in March 2019.

The Purchase Price was adjusted by assumed debt and contractual commitments of $ 11.8 million, and less cash acquired of $ 3.3 million.

The Company also paid $ 4.5 million in acquisition-related costs (or transaction costs).

The Company funded the cash consideration from cash on hand and the proceeds from a senior term loan facility (the "Senior Term Loan") in the principal amount of $ 70.0 million, as more fully described in Note 11.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The following table summarizes the final Purchase Price allocation.

Subsequent to December 31, 2018, the Company completed additional analysis and adjustments were made to the preliminary Purchase Price allocations as noted in the table below:

Fair value of assets acquired:

As Originally Reported Adjustments As Adjusted

Cash $ 3,284 $ — $ 3,284

Receivables 6,409 — 6,409

Inventories 22,100 ( 356 ) 21,744

Prepaid expenses and other current assets 2,992 61 3,053

Spare parts 3,359 — 3,359

Property, plant and equipment 43,033 ( 377 ) 42,656

Mine leases and development 2,500 200 2,700

Mine reclamation asset — 2,402 2,402

Intangible assets 4,000 100 4,100

Other assets 168 — 168

Amount attributable to assets acquired 87,845 2,030 89,875

Fair value of liabilities assumed:

Accounts payable 4,771 — 4,771

Accrued liabilities 7,354 254 7,608

Equipment lease liabilities 8,211 — 8,211

Mine reclamation liability 626 1,776 2,402

Other liabilities 437 — 437

Amount attributable to liabilities assumed 21,399 2,030 23,429

Net assets acquired $ 66,446 $ — $ 66,446

Adjustments to the preliminary Purchase Price allocation primarily related to changes in fair values assigned to property, plant and equipment, intangible assets, mine reclamation liability and the related mine reclamation asset as a result of the final valuation report from the Company's third-party valuation firm issued in May 2019.

The following table represents the intangible assets identified as part of the Carbon Solutions Acquisition:

(in thousands) Amount Weighted Average Useful Life (years)

Customer relationships $ 2,200 5

Developed technology 1,600 5

Trade name 300 2

Total intangibles acquired $ 4,100

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 9 - Inventories, net

The following table summarizes the Company's inventories recorded at the lower of average cost or net realizable value as of December 31, 2020 and 2019:

As of December 31,

(in thousands) 2020 2019

Product inventory $ 8,361 $ 13,515

Raw material inventory 1,521 1,945

$ 9,882 $ 15,460

Note 10 - Property, Plant and Equipment

The carrying basis and accumulated depreciation of property, plant and equipment at December 31, 2020 and 2019 are summarized in the table below:

Life in Years As of December 31,

(in thousands) 2020 2019

Land and land improvements 0 - 31

$ 891 $ 1,764

Plant and operating equipment 1 - 30

25,703 44,015

Furniture and fixtures 3 - 11

Machinery and equipment 1 - 8

Leasehold improvements 2 - 3

Construction in progress 2,143 2,985

32,773 51,445

Less accumulated depreciation ( 3,340 ) ( 7,444 )

Total property, plant and equipment, net $ 29,433 $ 44,001

Included in plant and operating equipment as of December 31, 2020 and 2019 is mining equipment financed under various lease facilities, and obligations due under these facilities are included in finance lease obligations in the Consolidated Balance Sheet.

The total amount recorded for ROU assets as of December 31, 2020 and 2019 related to finance lease obligations was $ 2.4 million and $ 5.9 million, respectively, net of accumulated depreciation of $ 0.5 million and $ 2.3 million.

Depreciation expense for the years ended December 31, 2020 and 2019 was $ 6.8 million and $ 6.0 million, respectively.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 11 - Debt Obligations

5 unchanged sentences

Senior Term Loan due December 2021, net 15,055 37,637

PPP Loan 3,305 —

Finance lease obligations 5,526 6,729

23,886 44,366

Current maturities ( 18,441 ) ( 23,932 )

Total long-term borrowings $ 5,445 $ 20,434

(1) As of December 31, 2018, obligations related to capital lease obligations as defined in ASC 840.

Senior Term Loan

In December 2018, the Company, and ADA-ES, Inc.

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 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 Carbon Solutions

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Acquisition as disclosed in Note 2 .

Proceeds from the Senior Term Loan were used to fund the Carbon Solutions Acquisition as disclosed in Note 8.

The Company also paid debt issuance costs of $ 2.0 million related to the Senior Term Loan.

The Senior Term Loan has a term of 36 months and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5% floor) + 4.75% per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears.

The Senior Term Loan matures on December 7, 2021 and bears interest at a rate equal to 3-month LIBOR (subject to a 1.5 % floor) + 4.75 % per annum, which is adjusted quarterly to the current 3-month LIBOR rate, and interest is payable quarterly in arrears.

Quarterly principal payments of $ 6.0 million were required beginning in March 2019, and the Company may prepay the Senior Term Loan at any time without penalty.

1 unchanged sentence

The Senior Term Loan includes, among others, the following covenants:

(1) Beginning December 31, 2018 and as of the end of each fiscal quarter thereafter, the Company must maintain a minimum cash balance of $5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan;

(2) Beginning in January 2019, annual collective dividends and buybacks of Company shares in an aggregate amount, not to exceed $30 million , is permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $100 million .

As of December 31, 2019 , the following table presents the future aggregate annual maturities of the Company’s Senior Term Loan excluding unamortized discounts and deferred financing costs:

Year ended December 31,

(in thousands)

Principal Amount

Line of Credit

In September 2013, ADA, as borrower, and the Company, as guarantor, entered into the Line of Credit with a bank (the "Lender") for an aggregate principal amount of $10.0 million that was secured by certain amounts due to the Company from certain Tinuum Group RC leases.

The Line of Credit has been amended 13 times from the period from December 2, 2013 through December 31, 2018, including two amendments executed in 2018.

On September 30, 2018, ADA, as borrower, the Company, as guarantor, and the Lender entered into an amendment (the "Twelfth Amendment") to the Line of Credit.

The Twelfth Amendment decreased the Line of Credit to $5.0 million due to decreased collateral requirements, extended the maturity date of the Line of Credit to September 30, 2020 and permitted the Line of Credit to be used as collateral (in place of restricted cash) for letters of credit ("LC's") up to $5.0 million related to equipment projects and certain other agreements.

Under the Twelfth Amendment, there was no minimum cash balance requirement based on the Company meeting certain conditions and maintaining minimum trailing twelve-month EBITDA (earnings before interest, taxes, depreciation and amortization), as previously defined in the "Eleventh Amendment" to the Line of Credit, of $24.0 million .

On December 7, 2018, ADA, as borrower, the Company, as guarantor, and the Lender entered into a further amendment to the Line of Credit, which provided, among other things, for ADA to be able to enter into the Senior Term Loan as a guarantor so long as the principal amount of the Senior Term Loan does not exceed $70.0 million .

Additionally, the financial covenants in the Line of Credit were amended and restated to be consistent with the aforementioned Senior Term Loan covenants, including maintaining a minimum cash balance of $5.0 million .

As of December 31, 2019 , there were no outstanding borrowings under the Line of Credit.

Note 7 - Leases

The financial statement impact from the adoption of ASC 842 as of January 1, 2019 is due to recording ROU assets and related lease liabilities for operating lease commitments that were outstanding as of December 31, 2018.

The Company elected the

(1) As of the end of each fiscal quarter, the Company must maintain a minimum cash balance of $ 5.0 million and shall not permit "expected future net cash flows from the refined coal business" (as defined in the Senior Term Loan) to be less than 1.75 times the outstanding principal amount of the Senior Term Loan;

(2) Annual collective dividends and buybacks of Company shares in an aggregate amount, not to exceed $ 30.0 million, are permitted so long as (a) no default or event of default exists under the Senior Term Loan and (b) expected future net cash flows from the refined coal business as of the end of the most recent fiscal quarter exceed $ 100.0 million.

Waiver and Limited Consent on Senior Term Loan

Pursuant to entering into the PPP Loan, on April 20, 2020, the Company and Apollo executed the First Amendment to the Senior Term Loan, which permitted the Company to enter into the PPP Loan.

On September 30, 2020, the Company and Apollo entered into a limited consent, which permitted the Company to (i) enter into the Surety Agreement, open the collateral bank accounts and post collateral required under the Surety Agreement, and (ii) acquire the membership interests in Marshall Mine, LLC., as described in Note 3.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

transitional practical expedients allowed under ASC 842, which include among other things that the Company need not reassess:

(1) whether any existing contracts are or contain leases, inclusive of land easements;

(2) the lease classification or lease term for existing leases;

and (3) initial direct costs for any existing leases.

In addition, the Company elected for all classes of underlying assets the practical expedient to not separate nonlease components from lease components and to account for each separate lease component and the nonlease components associated with that lease component as a single lease component.

ASC 842 defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The determination of whether a contract contains a lease may require significant assumptions and judgments.

Historically, Carbon Solutions has used leasing to fund the majority of its capital needs for mining and manufacturing equipment.

As of December 31, 2019 , the Company has obligations under finance and operating leases in the amounts of $6.7 million and $5.2 million , respectively.

As of December 31, 2020, the following table presents the future aggregate annual maturities of the Senior Term Loan excluding unamortized discounts and deferred financing costs:

Year ended December 31,

(in thousands) Principal Amount

2021 $ 16,000

Total $ 16,000

Line of Credit

In September 2013, ADA-ES, Inc.

("ADA"), a wholly-owned subsidiary of the Company, as borrower, the Company, as guarantor, entered into a line credit (the "Line of Credit") with a bank (the "Lender") for an aggregate principal amount of $ 10.0 million that was secured by certain amounts due to the Company from certain Tinuum Group RC leases.

The Line of Credit has been amended 14 times from the period from December 2, 2013 through December 31, 2020, which included a reduction in the principal amount to $ 5.0 million in September 2018.

On September 29, 2020, ADA, the Company and the "Lender entered into an amendment to the Line of Credit (the "Fourteenth Amendment"), which extended the maturity date of the Line of Credit to March 31, 2021.

In addition, the Fourteenth Amendment retained covenants from the prior amendments to the Line of Credit, which included ADA's ability to enter into the Senior Term Loan as a guarantor so long as the principal amount of the Senior Term Loan did not exceed $ 70.0 million and the revision of covenants that were consistent with the Senior Term Loan covenants, including maintaining a minimum cash balance of $ 5.0 million.

As of December 31, 2020 and 2019, there were no outstanding borrowings under the Line of Credit.

Note 12 - Leases

As of December 31, 2020 and 2019, the Company has obligations under finance leases of $ 5.5 million and $ 6.7 million, respectively, and obligations under operating leases of $ 3.0 million and $ 5.2 million, respectively.

ROU assets under finance leases are mining equipment used at the Company’s lignite mine, which provides the key raw material for manufacturing the Company’s products.

ROU assets under operating leases are primarily plant equipment used at the Company’s manufacturing facility, but also include other office equipment, vehicles and office facilities.

As of December 31, 2019 , the Company has ROU assets, net of accumulated amortization, under finance leases and operating leases of $5.9 million and $5.1 million , respectively.

As of December 31, 2020 and 2019, the Company has ROU assets, net of accumulated amortization, under finance leases of $ 2.4 million and $ 5.9 million and ROU assets, net of accumulated amortization, under operating leases of $ 1.9 million and $ 5.1 million, respectively.

Certain of the finance and operating leases have options permitting renewals for additional periods and buy-out options.

Renewal and buy-out options for applicable leases have not been included in the measurement of the respective lease liabilities as the Company is not reasonably certain that it will exercise the respective option or the lessor does not have an exclusive right to exercise the option.

Variable lease payments that are based on an index or rate, calculated by using the index or rate that exists on the lease commencement date, are included in the measurement of a lease liability.

The Company records lease liabilities and related ROU assets for all leases that have a term of greater than one year.

For short-term leases (leases with terms of less than one year), the Company expenses lease payments on a straight-line basis over the lease term.

Finance leases

Leases classified as capital leases under ASC 840 and the related assets and liabilities were recorded and classified as finance leases as of January 1, 2019 based on their carrying values of $8.1 million and $8.2 million , respectively, as of December 31, 2018.

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 Consolidated Balance Sheet as of December 31, 2019 .

Interest on finance lease liabilities is determined in each period during the lease term as the amount that produces a constant periodic discount rate on the remaining balance of the lease liability.

ROU assets under finance leases are amortized over the remaining lease term on a straight-line basis.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Operating leases

Operating lease liabilities as of January 1, 2019 were calculated at the present value, using a discount rate of the lease, of the remaining minimum rental payments (as defined under ASC 840).

As the rate implicit in all of the operating leases was not readily determinable, the Company determined its discount rate as of January 1, 2019 based on an estimate of its incremental borrowing rate.

This rate was based on the Company’s effective borrowing rate on the Senior Term Loan, considering the collateral requirements contained therein, in effect as of January 1, 2019.

ROU assets under operating leases as of January 1, 2019 were determined as the calculated value of the operating lease liabilities less accrued lease payments and accrued lease incentives.

As of December 31, 2018, the total amount of accrued lease payments and accrued lease incentives was approximately $0.1 million .

ROU assets under operating leases and operating lease liabilities are included in Other long-term assets and Other liabilities and Other long-term liabilities, respectively, in the Consolidated Balance Sheet as of December 31, 2019 .

Lease expense from operating leases is recognized as a single lease cost over the remaining lease term on a straight-line basis.

Variable lease payments not included in operating lease liabilities are recognized as expense in the period in which the obligation for those payments is incurred.

Under ASC 842, lease expense for operating leases for the year ended December 31, 2019 was $4.4 million , of which $3.9 million is included in Consumables - cost of revenue, exclusive of depreciation and amortization, and $0.5 million is included in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2019 .

In August 2019, the Company entered into a new lease agreement covering approximately 21,000 square feet of office space for a term of 3.5 years and recorded an ROU asset of $1.2 million and a corresponding operating lease liability of $1.2 million .

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Lease financial information as of and for the year ended December 31, 2019 is provided in the following table:

Lease expense for operating leases for the year ended December 31, 2020 was $ 4.4 million, of which $ 3.8 million is included in Consumables cost of revenue, exclusive of depreciation and amortization, and $ 0.6 million is included in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2020.

Lease expense for operating leases for the year ended December 31, 2019 was $ 4.4 million, of which $ 3.9 million is included in Consumables cost of revenue, exclusive of depreciation and amortization, and $ 0.5 million is included in General and administrative in the Consolidated Statement of Operations for the year ended December 31, 2019.

In August 2019, the Company entered into a new lease agreement covering approximately 21,000 square feet of office space for a term of 3.5 years and recorded an ROU asset of $ 1.2 million and a corresponding operating lease liability of $ 1.2 million.

Lease financial information as of and for the years ended December 31, 2020 and 2019 is provided in the following table:

Year ended December 31,

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Variable lease cost (1)

Sublease income

Total lease cost $ 6,442 $ 7,329

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Right-of-use assets obtained in exchange for new operating lease liabilities $ 59 $ 1,309

Weighted-average remaining lease term - finance leases

Weighted-average remaining lease term - operating leases

Weighted-average remaining lease term - finance leases 3.5 years 4.2 years

Weighted-average remaining lease term - operating leases 1.8 years 2.4 years

Weighted-average discount rate - finance leases 6.2 % 6.1 %

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(1) Primarily includes common area maintenance, property taxes and insurance payable to lessors.

The following table summarizes the Company's future lease payments under finance and operating leases as of December 31, 2019 :

(in thousands)

Total Lease Commitments

Total lease payments

Imputed interest

Present value of lease payments

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Disclosures under ASC 840

As previously disclosed in the Company's 2018 Annual Report on Form 10-K and under ASC 840, the following table summarizes the Company’s future minimum non-cancellable lease payments due under capital and operating leases as of December 31, 2018 :

(in thousands)

Total minimum lease payments

The following table summarizes the Company's future lease payments under finance and operating leases as of December 31, 2020:

(in thousands) Operating

Commitments Finance

Commitments Total Lease Commitments

2021 $ 1,994 $ 1,859 $ 3,853

2022 748 1,008 1,756

2023 377 980 1,357

2024 — 1,928 1,928

2025 — 569 569

Thereafter — — —

Total lease payments 3,119 6,344 9,463

Imputed interest ( 127 ) ( 818 ) ( 945 )

Present value of minimum lease payments

Rent expense for the year ended December 31, 2018 was $0.3 million and was included in General and administrative expense in the Consolidated Statements of Operations .

As of December 31, 2018 , mining equipment financed under capital leases of $8.1 million , net of accumulated amortization of $0.1 million , was included in Property, plant and equipment in the Consolidated Balance Sheet .

Present value of lease payments $ 2,992 $ 5,526 $ 8,518

Note 13 - Revenues

Contract Assets and Liabilities

Contract assets are comprised of unbilled receivables and are included in Receivables, net in the Consolidated Balance Sheet .

Contract assets are comprised of unbilled receivables and are included in Receivables, net in the Consolidated Balance Sheets.

Unbilled receivables represent a conditional right to consideration in exchange for goods or services transferred to a customer.

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The Company records allowances for doubtful trade receivables when it is probable that the balances will not be collected.

Contract liabilities are comprised of deferred revenue, which represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, is included in Other current liabilities in the Consolidated Balance Sheet and, if deliverable outside of one year, is included in Other long-term liabilities in the Consolidated Balance Sheet .

Contract liabilities are comprised of deferred revenue, which represents an obligation to transfer goods or services to a customer for which the Company has received consideration from the customer and, if deliverable within one year or less, is included in Other current liabilities in the Consolidated Balance Sheets and, if deliverable outside of one year, is included in Other long-term liabilities in the Consolidated Balance Sheets.

Trade receivables, net

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Trade receivables, net $ 12,204 $ 7,430

During the years ended December 31, 2019 and 2018 , the Company recognized $0.1 million and $0.2 million , respectively, as bad debt expense related to specific accounts whose ultimate collection was in doubt.

During the years ended December 31, 2020 and 2019, the Company recognized zero and $ 0.1 million, respectively, as bad debt expense related to specific accounts whose ultimate collection was in doubt.

Upfront Customer Consideration

As described in Note 3, as of September 30, 2020, the Company recorded an asset for Upfront Customer Consideration of $ 7.6 million in connection with the Supply Agreement.

The amount is included in Other long-term assets, net on the Company's Consolidated Balance Sheet as of December 31, 2020.

The Upfront Customer Consideration is being amortized on a straight-line basis as a reduction to revenue over the expected 15 -year contractual period of the Supply Agreement.

Advanced Emissions Solutions, Inc.

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Disaggregation of Revenue and Earnings from Equity Method Investments

During the year ended December 31, 2019 and 2018 , all performance obligations related to revenues recognized were satisfied at a point in time.

For the years ended December 31, 2020 and 2019, all performance obligations related to revenues recognized were satisfied at a point in time.

The Company disaggregates its revenues by its major components as well as between its two operating segments, which are further discussed in Note 19 to the consolidated financial statements.

The Company does not disaggregate revenue by geographic region as revenue is generated primarily from customers in the United States;

however, in the PGI segment for the year ended December 31, 2019 , approximately 15% of PGI revenue was generated in Canada.

however, in the APT segment for the year ended December 31, 2020, approximately 15 % of APT revenue was generated in Canada.

The following tables disaggregate revenues by major source for the year ended December 31, 2020 and 2019 (in thousands):

Year ended December 31, 2020

(in thousands)

(in thousands) APT RC Total

Revenue component

Consumables $ 48,122 $ — $ 48,122

License royalties, related party — 13,440 13,440

Other 15 — 15

Revenues from customers 48,137 13,440 61,577

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Year ended December 31, 2019

(in thousands)

(in thousands) APT RC Total

Revenue component

Consumables $ 53,187 $ — $ 53,187

License royalties, related party — 16,899 16,899

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Total revenues and earnings from equity method investments $ 53,187 $ 86,075 $ 139,262

As further discussed in Note 19, as of December 31, 2020 the Company had a change in reportable segments.

The Company has recast the segment information above for the year ended December 31, 2019 to be consistent with the new reportable segments as of December 31, 2020.

Note 14 - Commitments and Contingencies

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The Company did not have any significant legal proceedings.

Other Commitments and Contingencies

The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group.

The Company, NexGen and two entities affiliated with NexGen have provided GSFS with limited guaranties (the "Tinuum Group Party Guaranties") related to certain losses it may suffer as a result of inaccuracies or breach of representations

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

and covenants.

Restricted Cash

As of December 31, 2020, the Company had short-term restricted cash of $ 5.0 million as required under a minimum cash balance requirement of a Senior Term Loan covenant, and long-term restricted cash of $ 5.0 million as required under the Surety Agreement related to the Reclamation Contract.

As of December 31, 2020, the Company had outstanding surety bonds of $ 36.7 million related to performance requirements under reclamation contracts associated with both the Five Forks Mine and the Marshall Mine.

As of December 31, 2020, the Company had restricted cash of $ 5.0 million securing the Surety Agreement and will be required to post an additional $ 5.0 million of restricted cash on March 31, 2021.

Other Commitments and Contingencies

The Company also has certain limited obligations contingent upon future events in connection with the activities of Tinuum Group.

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 contribution from the other party equal to 50 % of the amount paid.

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Stock Repurchase Programs

In November 2018, the Board authorized the Company to purchase up to $20.0 million of its outstanding common stock.

This stock repurchase program 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 this program.

In November 2019, the Board authorized an incremental $7.1 million to this stock repurchase program and provided that the program will remain in effect until all amounts are utilized or the program is otherwise modified by the Board.

Previously, the Board had authorized the Company to purchase up to $20.0 million of its outstanding common stock under a separate repurchase program that was in effect until July 31, 2018.

During the years ended December 31, 2019 and 2018 , under the collective stock repurchase programs authorized by the Board, the Company purchased 533,345 and 2,350,422 shares of its common stock for cash of $5.8 million and $25.3 million , inclusive of commissions and fees, respectively.

Of these amounts, zero and $15.6 million , respectively, was purchased in single blocks through privately negotiated transactions.

As of December 31, 2019 , the Company had $7.1 million remaining under its stock repurchase program.

Quarterly Cash Dividend

Dividends declared to holders of the Company's common shares during the years ended December 31, 2019 and December 31, 2018 were $18.6 million and $20.3 million , respectively.

A portion of the dividends remains accrued subsequent to the payment dates and represents dividends accumulated on nonvested shares of common stock held by employees of the Company that contain forfeitable dividend rights that are not payable until the underlying shares of common stock vest.

These amounts are included in both Other current liabilities and Other long-term liabilities on the Consolidated Balance Sheet as of December 31, 2019 and 2018 .

In November 2018, 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 under 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.

For the years ended December 31, 2020 and 2019, under the Stock Repurchase Program, the Company purchased 20,613 and 533,345 shares of its common stock for cash of $ 0.2 million and $ 5.8 million, inclusive of commissions and fees, respectively.

As of December 31, 2020, the Company had $ 7.0 million remaining under the Stock Repurchase Program.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Dividends declared and paid quarterly per share on all outstanding shares of common stock during the years ended December 31, 2019 and 2018 were as follows:

Quarterly Cash Dividend

Dividends declared to holders of the Company's common shares during the years ended December 31, 2020 and December 31, 2019 were $ 4.6 million and $ 18.6 million, respectively.

A portion of the dividends remains accrued subsequent to the payment dates and represents dividends accumulated on nonvested shares of common stock held by employees of the Company which contain forfeitable dividend rights which are not payable until the underlying shares of common stock vest.

These amounts are included in both Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets as of December 31, 2020 and 2019.

Dividends declared and paid quarterly per share on all outstanding shares of common stock for the years ended December 31, 2020 and 2019 were as follows:

Per share Date paid Per share Date paid

Dividends declared during quarter ended:

March 7, 2019

March 8, 2018

September 6, 2019

September 6, 2018

December 13, 2019

December 6, 2018

March 31 $ 0.25 March 10, 2020 $ 0.25 March 7, 2019

June 30 — 0.25 June 7, 2019

September 30 — 0.25 September 6, 2019

December 31 — 0.25 December 13, 2019

$ 0.25 $ 1.00

Tax Asset Protection Plan

United States 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 ADES experiences an "ownership change" (as defined in the Internal Revenue Code).

United States federal income tax rules, and Section 382 of the IRC in particular, could substantially limit the use of net operating losses and other tax assets if ADES experiences an "ownership change" (as defined in the IRC).

In general, an ownership change occurs if there is a cumulative change in the ownership of ADES by "5 percent stockholders" that exceeds 50 percentage points over a rolling three-year period.

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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 6, 2018, the Board approved the First Amendment to the Tax Asset Protection Plan (the "Amendment") that amends the TAPP.

The 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 2018 annual meeting, the Company's stockholders approved the Amendment, thus the Final Expiration Date will be the close of business on December 31, 2019, which was subsequently extended, as described below.

On April 5, 2019, the Board approved the Second Amendment to the TAPP (the "Second Amendment") that amends the TAPP, as previously amended.

The Second Amendment amends the definition of the “Final Expiration Date” under the TAPP to extend the duration of the TAPP and makes associated changes in connection therewith.

At the Company's 2019 annual meeting of stockholders, the Company's stockholders approved the Second Amendment, thus the Final Expiration Date became the close of business on December 31, 2020.

On April 8, 2020, the Board approved the Third Amendment to the TAPP ("Third Amendment") that amended the TAPP, as previously amended by the First and Second Amendments that were approved the Board on April 6, 2018 and April 5, 2019, respectively.

The Third Amendment amended 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 2020 annual meeting of stockholders, the Company's stockholders approved the Third Amendment, thus the Final Expiration Date will be the close of business on December 31, 2021.

Note 16 - Stock-Based Compensation

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The Company reserved 600,000 shares of its common stock for these purposes.

The Plan was amended and restated as of July 19, 2012 to make non-material changes to assure Internal Revenue Code Section 409A compliance.

The Plan was amended and restated as of July 19, 2012 to make non-material changes to assure IRC Section 409A compliance.

Upon the adoption of the 2017 Plan in June 2017, the Company no longer grants any awards from the 2010 Plan.

The 2017 Plan - During 2017, the Company adopted the 2017 Plan which permits grants of awards to employees, directors and non-employees, which may be shares, rights to purchase restricted stock, bonuses of restricted stock, or other rights or benefits under the plan.

As of December 31, 2019 , the Company has 2,000,000 shares of its common stock authorized for issuance under the 2017 Plan.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

As of December 31, 2020, the Company has 1,135,112 shares of its common stock authorized for issuance under the 2017 Plan.

RSA's - Restricted Stock Awards ("RSA's") are typically granted with vesting terms of three years.

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Compensation expense is recognized for PSU awards on a straight-line basis over the vesting period based on the estimated fair value at the date of grant using a Monte Carlo simulation model.

No PSU's were granted during the years ended December 31, 2019 or 2018 .

No PSU's were granted during the year ended December 31, 2019.

Risk-free interest rate - The risk-free interest rate for PSU's granted during the period was determined by using a zero-coupon U.S.

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(in thousands) 2020 2019

Stock option expense

RSA expense $ 2,304 $ 2,011

PSU expense 192 —

Total stock-based compensation expense $ 2,496 $ 2,011

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the Cost of goods sold and Payroll and benefits line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statements of Operations.

During the year ended December 31, 2019 and 2018 , the Company modified the terms of awards granted to zero and 13

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

employees in connection with its restructuring plans and termination of the impacted employees discussed in Note 19 .

These modifications resulted in the accelerated vesting and incremental expense related to certain performance-based awards and restricted stock awards.

As a result, during 2019 and 2018 , the Company recognized incremental stock-based compensation of zero and $0.8 million , respectively, which was included in the Payroll and benefits line item in the Consolidated Statements of Operations.

Stock-based compensation expense related to manufacturing employees and administrative employees is included in the Consumables cost of revenue and Payroll and benefits line items, respectively, in the Consolidated Statements of Operations.

Stock-based compensation expense related to non-employee directors and consultants is included in the General and administrative line item in the Consolidated Statement of Operations.

The amount of unrecognized compensation cost as of December 31, 2020, and the expected weighted-average period over which the cost will be recognized is as follows:

As of December 31, 2020

(in thousands)

Unrecognized Compensation Cost

Expected Weighted-Average Period of Recognition (in years)

(in thousands) Unrecognized Compensation Cost Expected Weighted-Average Period of Recognition (in years)

RSA expense $ 1,788 1.60

PSU expense 117 2.19

Total unrecognized stock-based compensation expense $ 1,905 1.62

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A summary of the status and activity of RSA's and RSU's is presented in the following table:

Restricted Stock

Weighted-Average Grant Date Fair Value

(in thousands, except for share and per share amounts)

Restricted Stock Weighted-Average Grant Date Fair Value

(in thousands, except for share and per share amounts) Awards Units RSA's RSU's

For the year ended December 31, 2020

Non-vested at January 1, 2020 451,344 — $ 10.65 $ —

Granted 315,383 — $ 5.20 $ —

Vested ( 356,394 ) — $ 9.41 $ —

Forfeited ( 36,473 ) — $ 10.42 $ —

Non-vested at December 31, 2020 373,860 — $ 7.25 $ —

The weighted-average grant date fair value of RSA's granted or modified during the years ended December 31, 2020 and 2019 was $ 5.20 and $ 11.03 , respectively.

The weighted-average grant date fair value of RSU's granted or modified during the years ended December 31, 2019 and 2018 was zero and $10.52 , respectively.

The total grant-date fair value of RSA's vested during the years ended December 31, 2020 and 2019 was $ 3.4 million and $ 1.1 million, respectively.

The aggregate intrinsic value of non-vested RSA's and RSU's outstanding as of December 31, 2019 was $4.7 million and zero , respectively.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The aggregate intrinsic value of non-vested RSA's outstanding as of December 31, 2020 was $ 2.1 million.

Stock Options

A summary of option activity under the Stock Plans is presented below:

(in thousands, except for share and per share amounts)

(in thousands, except for share and per share amounts) Number of

Outstanding and

Aggregate Intrinsic Value

Exercisable Weighted-

Price Aggregate Intrinsic Value Weighted-

Term (in years)

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Options vested and exercisable at December 31, 2020 — $ — $ — —

The weighted-average grant-date fair value of options vesting during the years ended December 31, 2019 and 2018 was zero and $0.3 million , respectively.

The weighted-average grant-date fair value of options exercised during the year ended December 31, 2019 and 2018 was $0.6 million and $0.3 million , respectively.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

The weighted-average grant-date fair value of options vesting during the years ended December 31, 2020 and 2019 was zero and zero , respectively.

The weighted-average grant-date fair value of options exercised during the year ended December 31, 2020 and 2019 was zero and $ 0.6 million, respectively.

The Company received proceeds of $ 0.2 million from the exercise of stock options during the year ended December 31, 2019.

The Company did no t receive cash from the exercise of stock options during the year ended December 31, 2018 .

Cash flows resulting from excess tax benefits, if any, are classified as part of cash flows from financing activities.

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The Company recorded no excess tax benefits for the years ended December 31, 2020 and 2019.

There were no PSU's granted during the years ended December 31, 2019 and 2018 .

PSU's outstanding remained unvested until the third anniversary date of their issuance, at which time the actual number of vested shares was determined based upon the actual price performances of the Company’s common stock relative to a broad stock index and a peer group performance index.

The following table shows the PSU's that were settled by issuing the Company's common stock relative to a peer group performance index and broad stock index.

Year of Grant

Net Number of Issued Shares upon Vesting

Shares Withheld to Settle Tax Withholding Obligations

TSR Multiple Range

Russell 3000 Multiple

For year ended December 31, 2018

PSU's outstanding remain unvested until the third anniversary of their issuance date, at which time the actual number of vested shares will be determined based upon the actual price performances of the Company’s common stock relative to a broad stock index and a peer group performance index.

A summary of PSU activity for the year ended December 31, 2020 is presented below:

Units Weighted-Average

Fair Value Aggregate Intrinsic Value (in thousands) Weighted-Average

Term (in years)

PSU's outstanding, December 31, 2020

PSU's outstanding, January 1, 2020 — $ —

Granted 50,127 6.17

Vested / Settled — —

Forfeited / Canceled — —

PSU's outstanding, December 31, 2020 50,127 $ 6.17 $ — 2.19

There were no PSU's granted during the year ended December 31, 2019.

Advanced Emissions Solutions, Inc.

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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 Consolidated Balance Sheet :

The following table summarizes the components of Prepaid expenses and other current assets and Other long-term assets, net as presented in the Consolidated Balance Sheets:

As of December 31,

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Prepaid income taxes 1,605 4,228

Other 1,302 1,896

$ 4,597 $ 7,832

Other long-term assets:

Upfront customer consideration (1)

Cabot receivable (1)

Right of use assets, operating leases, net 1,930 5,073

4 unchanged sentences

Other long-term assets 1,388 1,718

$ 29,989 $ 20,331

(1) See further discussion of Upfront Customer Consideration in Note 3 and Cabot receivable in Note 4.

Spare parts include critical spares required to support plant operations.

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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 are depleted over the estimated life of the related mine reserves, which is 21 years .

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, which is 16 years.

There were no indicators of impairment as of December 31, 2019 .

Mine reclamation asset represents an asset retirement obligation asset and is depreciated over the estimated life of the mine.

Mine reclamation asset represents the ARO asset related to the Five Forks Mine and is depreciated over its estimated life.

The Company holds a long-term investment (the "Highview Investment") in Highview Enterprises Limited ("Highview"), a London, England based developmental stage company specializing in power storage.

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There were no changes to the carrying value of the Highview Investment for the years ended December 31, 2020 and 2019 as there were no indicators of impairment or observable price changes for equity issued by Highview.

Since the purchase date, the Company has recognized $ 2.2 million of cumulative impairment losses on the Highview Investment.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Consolidated Balance Sheet :

The following table details the components of Other current liabilities and Other long-term liabilities as presented in the Consolidated Balance Sheets:

As of December 31,

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Income and other taxes payable 1,305 678

Current portion of mine reclamation liability 9,370 —

Other current liabilities 369 1,038

$ 12,996 $ 4,311

Other long-term liabilities:

Operating lease obligations, long-term $ 1,109 $ 2,810

Mine reclamation liability

Included in Other long-term liabilities is the Mine reclamation liability, which represents an asset retirement obligation.

Changes in the asset retirement obligation were as follows:

Mine reclamation liabilities 12,077 2,721

Other 287 229

$ 13,473 $ 5,760

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 December 31,

(in thousands) 2020 2019

Asset retirement obligation, beginning of year

Asset retirement obligation assumed in Carbon Solutions Acquisition

Asset retirement obligations, beginning of year $ 2,721 $ 624

Asset retirement obligations assumed 21,328 1,776

Accretion 543 205

Liabilities settled ( 3,565 ) ( 78 )

1 unchanged sentence

Asset retirement obligations, end of year 21,447 2,721

As part of the Carbon Solutions Acquisition, the Company assumed an asset retirement obligation related to the Five Forks Mine.

The Company recorded the liability at its estimated fair value and periodically adjusts to reflect changes in the estimated present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the reclamation costs.

Refer to Note 2 for details regarding adjustments made to the fair values of the asset retirement obligation from the preliminary purchase price allocation.

The Company’s mining activities are subject to various domestic laws and regulations governing the protection of the environment.

The Company conducts its operations to protect public health and the environment and believes its operations are in compliance with applicable laws and regulations in all material respects.

The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.

Estimated future reclamation costs are based principally on current legal and regulatory requirements.

Less current portion 9,370 —

Asset retirement obligations, long-term $ 12,077 $ 2,721

Advanced Emissions Solutions, Inc.

2 unchanged sentences

Supplemental Consolidated Statements of Operations Information

Gain on Settlement

On December 29, 2020, the Company and a former customer (the "Parties") reached a settlement (the "Settlement") on various litigation matters (the "Litigation Matters") that resulted in the former customer (the "Former Customer") agreeing to pay to the Company cash of $ 2.5 million (the "Settlement Amount"), which was received on January 27, 2021.

This payment was in exchange for full dissolution of all claims and counterclaims that the two Parties have asserted or could have asserted against each other in the Litigation Matters, or which have arisen or may arise against each other but are presently unknown, arising out of or related to the Litigation Matters and related to any other of the Parties’ business dealings, conduct and/or transactions through the date of the Settlement, including all claims for damages, fees, costs, sanctions, or any other amounts due or to become due in connection with the foregoing.

The Company applied the Settlement Amount cash proceeds to both an outstanding trade account receivable and note receivable due from the Former Customer and recognized the excess cash received as a gain on the Settlement of $ 1.1 million, which is reported as a component of operating expenses in the Consolidated Statements of Operations for the year ended December 31, 2020.

The gain on settlement impacted operating income for the quarterly period ended December 31, 2020.

The following table details the components of Interest expense in the Consolidated Statements of Operations:

4 unchanged sentences

453A interest 331 1,039

Other 463 345

$ 3,920 $ 7,174

The following table details the components of Other in the Consolidated Statements of Operations:

2 unchanged sentences

Interest income $ 127 $ 261

Note 13 - Fair Value Measurements

Fair Value of Financial Instruments

The carrying amounts of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, deposits and accrued expenses, approximate fair value due to the short maturity of these 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 December 31, 2019

As of December 31, 2018

(in thousands)

Carrying Value

Financial Instruments:

Highview Investment

Highview Obligation

Concentration of credit risk

As of December 31, 2019 , 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 December 31, 2019 .

If those institutions were unable to perform their obligations, the Company would be at risk regarding the amount of its cash balance in excess of the federal deposit insurance corporation limits ( $250 thousand ).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2019 and December 31, 2018 , the Company had no material financial instruments carried and measured at fair value on a recurring basis.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company completed the Carbon Solutions Acquisition, in which the fair value of the purchase consideration totaled $66.5 million .

The Company's estimated fair values of the assets acquired and liabilities assumed are disclosed in Note 2 .

The fair value measurements represent Level 3 measurements as they were based on significant inputs not observable in the market.

The Company has applied the measurement alternative for investments without readily determinable fair values under ASC Topic 321 - Investments in Equity Securities ("ASC 321") for the Highview Investment.

Fair value measurements, if any,

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

resulting from the Company's application of the guidance in ASC 321 represent either Level 2 or Level 3 measurements.

There were no changes to the carrying value of the Highview Investment for the years ended December 31, 2019 and 2018 as there were no indicators of impairment or observable price changes for equity issued by Highview.

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 18 - Income Taxes

3 unchanged sentences

Current portion of income tax expense:

Federal $ 1,666 $ 2,133

State and other 1,354 1,211

Deferred portion of income tax expense (benefit):

Federal 5,068 10,491

State and other ( 1,577 ) ( 1,836 )

8 unchanged sentences

Permanent differences 326 286

Tax credits ( 417 ) ( 338 )

Valuation allowances 9,148 ( 288 )

1 unchanged sentence

Stock-based compensation 285 112

Return to provision and other true-ups 572 138

UTP liability — 236

Expense for the provision for income taxes $ 6,511 $ 11,999

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying Consolidated Balance Sheets.

These temporary differences result in taxable or deductible amounts in future years.

Details of the Company’s deferred tax assets and liabilities are summarized as

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and their reported amounts in the accompanying Consolidated Balance Sheets.

These temporary differences result in taxable or deductible amounts in future years.

Details of the Company’s deferred tax assets and liabilities are summarized as follows:

As of December 31,

1 unchanged sentence

Deferred tax assets

Operating lease obligations

Employee related liabilities

Intangible assets

Tax credits $ 93,874 $ 98,541

Equity method investments 5,149 —

Net operating loss carryforwards 2,906 2,956

Intangible assets 2,765 1,574

ARO, net of reimbursements 2,167 80

Employee related liabilities 827 1,065

Other investments 548 555

Operating lease obligations 508 1,307

Inventory — 507

Total deferred tax assets 108,813 106,829

4 unchanged sentences

Equity method investments — ( 736 )

Upfront customer consideration ( 1,847 ) —

Right of use operating lease assets ( 270 ) ( 1,301 )

Inventory ( 295 ) —

Total deferred tax liabilities ( 9,451 ) ( 13,124 )

6 unchanged sentences

In estimating taxes, the Company assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial, and regulatory guidance.

As of December 31, 2019 , the Company concluded it is more likely than not the Company will generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize $14.1 million of its net deferred tax assets, which resulted in a decrease in the valuation allowance from December 31, 2018 of $0.3 million .

As of December 31, 2020, the Company concluded it is more likely than not the Company will generate sufficient taxable income within the applicable net operating loss and tax credit carry-forward periods to realize $ 10.6 million of its net deferred tax assets, which resulted in an increase in the valuation allowance from December 31, 2019 of $ 9.1 million.

In reaching this conclusion, the Company primarily considered:

(1) the future reversal of existing temporary differences;

and (2) forecasts of continued future taxable income.

and (2) forecasts of future taxable income.

Advanced Emissions Solutions, Inc.

3 unchanged sentences

As of December 31,

(in thousands)

Beginning expiration year

Ending expiration year

Federal tax credit carryforwards

(in thousands) 2020 Beginning expiration year Ending expiration year

Foreign net operating loss carryforwards $ 656 2041 2041

State and other operating loss carryforwards $ 2,250 2021 2036

Federal tax credit carryforwards $ 93,874 2032 2040

The following table sets forth a reconciliation of the beginning and ending unrecognized tax benefits on a gross basis for the years ended December 31, 2020 and 2019:

4 unchanged sentences

Balance as of December 31 $ 946 $ 946

Included in the balance of unrecognized tax benefits as of December 31, 2019 are $0.7 million of tax benefits that, if utilized, would result in adjustments to deferred taxes.

Included in the balance of unrecognized tax benefits as of December 31, 2020 and December 31, 2019 is $ 0.7 million of tax benefits that, if utilized, would result in an adjustment to deferred taxes.

The Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2020 and 2019.

13 unchanged sentences

(1) Refined Coal ("RC");

and (2) Power Generation and Industrials ("PGI").

The majority of Carbon Solutions operations has been included in the PGI segment;

whereas a portion has been included in All Other and Corporate.

and (2) Advanced Purification Technologies ("APT").

Given the downward trends in the coal-fired power generation market, the prices of competing power generation sources as well as the expected expiration of the Section 45 tax credit period as of December 31, 2021, during 2020 we initiated plans to expand our AC products and diversify into new markets.

As a result, internal changes, including changes in operating structure and the method in which the Chief Operating Decision Maker ("CODM") allocates resources, resulted in the change in reportable segments.

The Company has recast segment information below for the year ended December 31, 2019 to be consistent with the new reportable segments as of December 31, 2020.

The business segment measurements provided to and evaluated by the CODM are computed in accordance with the principles listed below:

1 unchanged sentence

• 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 includes Payroll and benefits , Legal and professional fees , and General and administrative .

RC segment operating income includes interest expense directly attributable to the RC segment.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

• Segment operating income (loss) includes segment revenues and allocation of certain "Corporate general and administrative expenses," which includes 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 December 31, 2020 and 2019, substantially all of the Company's material assets are located in the U.S.

6 unchanged sentences

License royalties, related party 13,440 16,899

Power Generation and Industrials:

44,418 86,075

Advanced Purification Technologies:

Consumables 48,122 53,187

48,137 53,187

Total segment reporting revenues 92,555 139,262

1 unchanged sentence

Earnings in equity method investments ( 30,978 ) ( 69,176 )

Corporate and other

Total reported revenues $ 61,577 $ 70,086

1 unchanged sentence

Refined Coal (1)

Power Generation and Industrials (2)

$ 42,689 $ 83,471

Advanced Purification Technologies (2)

( 39,958 ) ( 13,600 )

Total segment operating income $ 2,731 $ 69,871

(1) Included in the RC segment operating income for the years ended December 31, 2019 and 2018 is 453A interest expense of $1.0 million and $1.6 million , respectively.

Also included in the RC segment operating income for the year ended December 31, 2018 was $0.4 million of severance expense.

(2) Included in the PGI segment operating income for the year ended December 31, 2019 and 2018 was approximately $4.7 million and $1.0 million , respectively, of amortization expense related to the fair value of inventory.

Also included in the PGI segment operating income for the year ended December 31, 2019 and 2018 was $6.7 million and $0.5 million , respectively, of depreciation, amortization, and depletion on mine and plant related long-lived assets.

(1) Included in RC segment operating income for the years ended December 31, 2020 and 2019 is 453A interest expense of $ 0.3 million and $ 1.0 million, respectively.

(2) Included in APT segment operating loss for the years ended December 31, 2020 and 2019 was $ 7.9 million and $ 7.2 million, respectively, of depreciation, amortization, depletion and accretion expenses on mine and plant related long-lived assets and liabilities.

Included in APT segment operating loss for the year ended December 31, 2020 was an impairment charge of $ 26.1 million, offset by a gain on settlement of $ 1.1 million.

Included in APT segment operating loss for the year ended December 31, 2019 was approximately $ 5.0 million of amortization expense related to the fair value of inventory.

Advanced Emissions Solutions, Inc.

5 unchanged sentences

Total reported segment operating income $ 2,731 $ 69,871

Other operating (loss) income

Adjustments to reconcile to income before income tax expense attributable to the Company:

Adjustments to reconcile to (loss) income before income tax expense attributable to the Company:

Corporate payroll and benefits ( 2,866 ) ( 2,592 )

4 unchanged sentences

Other income, net 5 427

Income before income tax expense

(Loss) income before income tax expense $ ( 13,791 ) $ 47,536

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.

4 unchanged sentences

Refined Coal (1)

Power Generation and Industrials

$ 11,516 $ 43,953

Advanced Purification Technologies (2)

80,877 90,083

Total segment assets 92,393 134,036

All Other and Corporate (2)

Corporate (3)

54,278 39,763

Consolidated $ 146,671 $ 173,799

(1) Includes $ 7.7 million and $ 39.2 million of investments in equity method investees as of December 31, 2020 and 2019, respectively.

(2) Includes $ 34.6 million and $ 56.5 million of long-lived assets, net.

Expenditures for additions to long-lived assets were $ 7.3 million and $ 12.6 million, respectively, for the years ended December 31, 2020 and 2019.

(3) Includes the Company's net deferred tax assets of $ 10.6 million and $ 14.1 million as of December 31, 2020 and 2019, respectively .

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Note 20 - Fair Value Measurements

Fair Value of Financial Instruments

T he carrying amounts of the Senior Term Loan and other obligations.

including finance leases, 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 December 31, 2020 As of December 31, 2019

(in thousands) Carrying Value Fair Value Carrying Value Fair Value

Financial Instruments:

Highview Investment $ 552 $ 552 $ 552 $ 552

Highview Obligation $ 228 $ 228 $ 220 $ 220

Concentration of credit risk

As of December 31, 2020, 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 December 31, 2020.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

As of December 31, 2020 and December 31, 2019, the Company had no material 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 3, the Company completed the asset acquisition of Marshall Mine, LLC.

The estimated fair values of the assets acquired and liabilities assumed were determined based on Level 3 inputs.

As disclosed in Note 5, the Company recorded an impairment charge related to the Asset Group based on a valuation model that included an expected future discounted cash flow model using Level 3 inputs.

The Company completed the Carbon Solutions Acquisition, in which the fair value of the purchase consideration totaled $ 66.5 million.

The Company's estimated fair values of the assets acquired and liabilities assumed are disclosed in Note 8.

The fair value measurements represent Level 3 measurements as they were based on significant inputs not observable in the market.

As noted in Note 17, 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.

Note 21 - Major Customers

1 unchanged sentence

Years ended December 31,

License royalties, related party

Customer Revenue Type Segment(s) 2020 2019

A License royalties, related party RC 22 % 24 %

B Consumables APT 10 % 10 %

Advanced Emissions Solutions, Inc.

13 unchanged sentences

Note 23 - Defined Contribution Savings Plans

The Company sponsors two qualified defined contribution savings plans (collectively the "401(k) Plans") that allow participation by eligible employees who may defer a portion of their gross pay.

The Company makes contributions to the 401(k) Plans based on percentages of an employee's eligible compensation as specified in the 401(k) Plans, and such employer contributions are in the form of cash.

As of January 1, 2020, the Company merged the 401(k) Plans.

The following table presents the amount of the Company's contributions made to the 401(k) Plan:

The Company sponsors a qualified defined contribution savings plan (the "401(k) Plan") that allows participation by eligible employees who may defer a portion of their gross pay.

The Company makes contributions to the 401(k) Plan based on percentages of an employee's eligible compensation as specified in the 401(k) Plan, and such employer contributions are in the form of cash.

Prior to January 1, 2020, the Company sponsored two 401(k) Plans, which were merged effective January 1, 2020.

The following table presents the amount of the Company's contributions made to the 401(k) Plans:

Years Ended December 31,

1 unchanged sentence

401(k) Plans employer contributions $ 484 $ 553

Due to the increase in employees resulting from the Carbon Solutions Acquisition, there was an increase in employer contributions made to the 401(k) Plan for the year ended December 31, 2019 .

Note 19 - Restructuring

In December 2018, the Company recorded restructuring charges in connection with the departures of certain executives of Carbon Solutions in conjunction with the Carbon Solutions Acquisition.

As part of the Carbon Solutions Acquisition, the Company also assumed a salary severance liability for an additional executive of Carbon Solutions in the amount of $0.6 million .

Additionally, the Company recorded restructuring charges in 2018 in connection with a reduction in force that commenced in May 2018 as part of the Company's further alignment of the business with strategic objectives, which included the departure of certain executive officers.

These charges related to cash severance arrangements with departing employees and executives, as well as stock-based compensation charges related to the acceleration of vesting of certain stock awards.

During the year ended December 31, 2019 , the Company did not record material restructuring charges.

Note 24 - Restructuring and Other Compensation

Restructuring

For the years ended December 31, 2020 and 2019, the Company did not record material restructuring charges.

Other Compensation

On March 27, 2020, the Company's CEO resigned from the Company effective June 30, 2020.

Pursuant to a settlement agreement executed between the Company and the CEO, the Company was obligated to pay severance compensation to the CEO in the form of salary continuance, cash bonus, contingent upon the Company achieving a performance metric, healthcare benefits, RSAs and PSUs, which in the aggregate was $ 1.4 million.

As of June 30, 2020, the Company recorded a liability for the total severance compensation and corresponding expense under the caption "Payroll and benefits" in the Condensed Consolidated Statements of Operations.

Advanced Emissions Solutions, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements

A summary of the net pretax charges incurred by segment is as follows:

Pretax Charge

(in thousands, except employee data)

Approximate Number of Employees

All Other and Corporate

Year ended December 31, 2018

Restructuring charges

Changes in estimates

Total pretax charge, net of reversals

A summary of the net pretax charges incurred is as follows:

The following table summarizes the Company's utilization of restructuring accruals for the years ended December 31, 2020 and 2019:

(in thousands)

Employee Severance

(in thousands) Employee Severance

Beginning accrual as of January 1, 2019 $ 2,208

2 unchanged sentences

Change in estimates ( 75 )

Severance liability acquired

Accrual as of December 31, 2019 254

1 unchanged sentence

Cash payments and other ( 1,386 )

Change in estimates

Accrual as of December 31, 2020 $ 271

For the years ended December 31, 2019 and 2018 , included in the Expense provision and Cash payments and other line items in the above table is stock-based compensation of zero and $0.8 million , respectively, resulting from the accelerated vesting of modified equity-based compensation awards for certain terminated employees.

Restructuring accruals related to personnel are included in the Accrued payroll and related liabilities line item in the Consolidated Balance Sheet .

Restructuring expenses related to personnel are included in the Payroll and benefits and Research and development, net line items in the Consolidated Statements of Operations .

Restructuring accruals related to facilities are included in the Other current liabilities line item in the Consolidated Balance Sheet .

Restructuring expenses related to facilities are included in the Rent and occupancy line item in the Consolidated Statements of Operations .

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended December 31, 2020 and 2019, included in the Expense provision and Cash payments and other line items in the above table is stock-based compensation of $ 0.6 million and zero , respectively, resulting from the accelerated vesting of equity-based compensation awards for certain terminated employees.

Restructuring accruals related to personnel are included in the Accrued payroll and related liabilities line item in the Consolidated Balance Sheets.

Restructuring expenses related to personnel are included in the Payroll and benefits and Impairment of long-lived assets line items in the Consolidated Statements of Operations.

Note 25 - Quarterly Financial Results (unaudited)

1 unchanged sentence

For the Quarter Ended

(in thousands, except per share data)

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

(in thousands, except per share data) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020

Revenues $ 18,360 $ 19,471 $ 11,483 $ 12,263

Cost of revenues, exclusive of operating expenses shown below 10,693 15,013 7,416 11,491

Other operating expenses 6,117 (1) 7,283 35,132 9,413

Operating loss

Operating income (loss) 1,550 ( 2,825 ) ( 31,065 ) ( 8,641 )

Earnings from equity method investments 5,019 9,518 8,168 8,273

Other expenses, net ( 943 ) ( 864 ) ( 814 ) ( 1,167 )

Income before income tax expense

Income tax (benefit) expense

Earnings per common share – basic

Earnings per common share – diluted

Income (loss) before income tax expense 5,626 5,829 ( 23,711 ) ( 1,535 )

Income tax expense 5,196 (2) 854 103 358

Net income (loss) $ 430 $ 4,975 $ ( 23,814 ) $ ( 1,893 )

Earnings (loss) per common share – basic $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Earnings (loss) per common share – diluted $ 0.02 $ 0.27 $ ( 1.32 ) $ ( 0.11 )

Weighted-average number of common shares outstanding

Basic 18,109 18,093 18,014 17,932

Diluted 18,167 18,103 18,014 17,932

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

For the Quarter Ended

(in thousands, except per share data)

December 31, 2018

September 30, 2018

June 30, 2018

March 31, 2018

(in thousands, except per share data) December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019

Revenues $ 16,047 $ 19,133 $ 15,577 $ 19,329

Cost of revenues, exclusive of operating expenses shown below 11,104 11,939 12,292 14,108

Other operating expenses 9,630 9,585 7,545 8,776

Operating (loss) income

Operating loss ( 4,687 ) ( 2,391 ) ( 4,260 ) ( 3,555 )

Earnings from equity method investments 12,125 14,426 20,935 21,690

1 unchanged sentence

Income before income tax expense 6,169 10,518 14,748 16,101

Income tax expense (benefit)

Income tax (benefit) expense ( 2,929 ) (3) 6,595 6,634 1,699

Net income $ 9,098 $ 3,923 $ 8,114 $ 14,402

Earnings per common share – basic $ 0.50 $ 0.22 $ 0.45 $ 0.79

1 unchanged sentence

Weighted-average number of common shares outstanding

Advanced Emissions Solutions, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

(1) During the fourth quarter of 2019, the Company recorded income tax benefit of $2.9 million primarily due to a decrease in current income tax expense compared to current income tax recorded form the nine months ended September 30, 2019.

Basic 18,066 18,112 18,172 18,268

Diluted 18,275 18,339 18,377 18,433

(1) During the fourth quarter of 2020, the Company recorded a gain on settlement of 1.1 million related to the Settlement reached with the Former Customer as further described in Note 17.

(2) During the fourth quarter of 2020, the Company recorded income tax expense of $ 5.2 million primarily due to an increase in the valuation allowance as of December 31, 2020 related to the Company's deferred income tax assets.

(3) During the fourth quarter of 2019, the Company recorded income tax benefit of $ 2.9 million primarily due to a decrease in current income tax expense compared to current income tax recorded from the nine months ended September 30, 2019.

This decrease was primarily due to a decrease in income before income tax expense for the year ended December 31, 2019 compared to the estimated annual income before income tax expense that was used in computing current income tax expense for the nine months ended September 30, 2019.

(2) During the fourth quarter of 2018, the Company completed the Carbon Solutions Acquisition and the operating results for the fourth quarter of 2018 include the operations of Carbon Solutions for the period from December 7 to December 31, 2018.

For this period, Carbon Solutions contributed $5.6 million to Revenues, $3.4 million to Cost of Revenue, $2.6 million to Other Operating Expenses and $0.4 million to Loss before income tax expense.

(3) During the fourth quarter of 2018, the Company incurred $3.4 million in transaction costs and $1.1 million in severance charges for executives related to the Carbon Solutions Acquisition that were recorded in Other Operating Expenses.

(4) During the fourth quarter of 2018, the Company recorded income tax expense of $5.3 million primarily due to an increase of $4.5 million to the valuation allowance on its deferred tax assets.

Note 26 - Subsequent Events

Unless disclosed elsewhere in the notes to the Consolidated Financial Statements, the following are the significant matters that occurred subsequent to December 31, 2020.

On February 7, 2020, the Board declared a quarterly dividend of $0.25 per share of common stock, which was paid on March 10, 2020 to stockholders of record at the close of business on February 21, 2020.

In February 2021, the Company entered into a 5 -year supply agreement with Cabot Norit Nederland B.V., a subsidiary of Cabot Corporation ("Cabot"), to supply Cabot with lignite activated carbon products and other ADES proprietary products used for mercury removal in utility and industrial coal-fired power plants.

Cabot will be the exclusive and sole reseller of the products within Europe, Turkey, the Middle East and Africa.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data