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Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-08 · 131 added, 221 removed, 173 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

We sell consumable products that utilize AC and chemical-based technologies to a broad range of customers, including coal-fired utilities, industrials, water treatment plants, and other diverse markets through a customer supply agreement described below.

We are an environmental technology company and are principally engaged in the sale of consumable air and water treatment solutions primarily based on AC.

Our proprietary AC products enable customers to reduce air, soil, and water contaminants, including mercury, PFAS and other pollutants, to help our customers maximize utilization effectiveness and to improve operating efficiencies to meet the challenges of existing and pending air quality, soil, and water regulations.

We manufacture and sell AC and other chemicals used to capture and remove contaminants for coal-fired power generation, industrial and water treatment markets, which we collectively refer to as the advanced purification technologies or "APT" market.

Our primary products are comprised of AC, which is produced from a variety of carbonaceous raw materials.

Our AC products include both PAC and GAC.

Our proprietary technologies and associated product offerings provide purification solutions to enable our customers to reduce certain contaminants and pollutants to meet the challenges of existing and potential future regulations.

Additionally, we own the Five Forks Mine, a lignite mine that supplies the primary raw material for the manufacturing of our products.

Through December 31, 2021, we operated two segments:

Refined Coal ("RC") and Advanced Purification Technologies ("APT").

Our RC segment was comprised of our equity ownership in Tinuum Group and Tinuum Services, both of which are unconsolidated entities from which we generated substantial earnings through December 31, 2021.

We also earned royalties for technologies that we licensed to Tinuum Group, which were used at certain RC facilities to enhance combustion and reduce emissions of NOx and mercury from coal burned to generate electrical power.

Effective December 31, 2021, the Section 45 tax credit period expired and, as a result, both Tinuum Group and Tinuum Services ceased their operations.

During 2022, we received additional cash distributions from both Tinuum Group and Tinuum Services as they wound down their operations.

We may receive additional cash distributions until both entities are dissolved.

Given the wind-down of Tinuum Group and Tinuum Services and the impact on our financial statements, we determined the historical RC segment no longer met the qualitative or quantitative criteria to be considered a reporting segment under U.S.

As a result, as well as the method in which the chief operating decision maker allocates resources, beginning January 1, 2022, we determined that we had one reportable segment, and therefore have removed segment disclosures for this Report.

Additionally, we own the Five Forks Mine, a lignite mine that currently supplies the primary raw material for the manufacturing of our products.

In February 2023, we acquired 100% of the equity of the subsidiaries of Arq Limited (hereafter the Arq Limited subsidiaries referred to as "Legacy Arq", and the acquisition itself referred to as the "Arq Acquisition") to secure access to a feedstock, a manufacturing facility and certain patented processes as a means to manufacture additional GAC products for sale into the APT and other markets.

With the Arq Acquisition, we now control bituminous coal waste reserves and own a manufacturing facility, both located in Corbin, Kentucky (the "Corbin Facility"), and a process to recover and purify the bituminous coal fines for sale or further conversion to GAC products.

Under this manufacturing process, we convert coal waste into a purified, microfine carbon powder known as Arq powder TM ("Arq Powder").

We expect to begin using Arq Powder as a feedstock to begin manufacturing GAC products by the end of 2024 to begin using Arq Powder as a feedstock to produce high-quality GAC products for sale in the APT and other markets.

We believe Arq Powder has additional potential for us to access new markets and applications.

We expect to secure customer interest in Arq Powder as an additive into other markets, such as components for asphalt.

These products utilizing Arq Powder are expected to have a lower carbon footprint compared to similar products utilizing conventional materials.

These applications are currently in various stages of proof of concept testing or preliminary customer testing.

In February 2024, as part of a larger rebranding, the Company changed its name to Arq, Inc., and on February 1, 2024, our common stock commenced trading under the ticker symbol, "ARQ".

Drivers of Demand and Key Factors Affecting Profitability

Drivers of demand and key factors affecting our profitability are sales of our consumables-based solutions for coal-fired power generation, industrials, municipal water customers and other diverse markets served by our major customer, Norit, to whom we sell product through the Supply Agreement discussed below.

Drivers of demand and current key factors affecting our profitability are sales of our AC products to the APT market.

Our operating results are influenced by:

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(3) changes in coal-fired dispatch and electricity power generation sources and (4) changes in demand for contaminant removal within water treatment facilities.

During 2022, we continued to see high demand for our AC products.

As such, we continued to purchase inventory to supplement customer demands in excess of our production capacity and to achieve our target inventory levels.

Although we expect to continue to supplement inventories throughout 2023, we anticipate that those purchases will be at reduced levels compared to 2022.

Supply Agreement

On September 30, 2020, we and Norit entered into the Supply Agreement, pursuant to which we agreed to sell and deliver to Norit, and Norit agreed to purchase and accept from us, our 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.

For 2022 and 2021, the Supply Agreement provided material incremental volume and allowed us to capture operating cost efficiencies at the Red River Plant.

The incremental volumes from the Supply Agreement have improved fixed cost absorption and resulted in increased gross margins.

Further, the Supply Agreement has expanded our AC products to diverse end markets that are outside of those we historically served.

On February 25, 2022, we received $10.6 million in cash from Norit as a result of the Change in Control, of which $8.5 million represented full payment of an outstanding reimbursement amount related to reclamation of the Marshall Mine.

As a result of the Change in Control, we recognized a loss of $0.5 million in settlement of the outstanding reimbursement.

The Change in Control did not impact any other provisions of the Supply Agreement.

Marshall Mine

Concurrently with the execution of the Supply Agreement, on September 30, 2020, we entered into the Mine Purchase Agreement from Cabot for 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").

We independently determined to immediately commenced activities to shutter the Marshall Mine and to incur the associated reclamation costs.

On September 2, 2022, we entered into a Purchase Agreement with a third party (the "MM Buyer") to sell all of our membership interests in Marshall Mine, LLC to the MM Buyer in exchange for a cash payment to be made by us to the MM Buyer of approximately $2.4 million and the assumption by the MM Buyer of certain liabilities of Marshall Mine, LLC (the "MM Sale").

The MM Buyer previously operated the Marshall Mine on behalf of Marshall Mine, LLC and is currently performing reclamation under the Reclamation Contract.

The Purchase Price is subject to adjustments for certain events that may occur during the period from the Agreement Date and the Closing Date.

The obligations of the Parties to close the MM Sale is subject to certain events, including (1) obtaining the approval of the Commission for an operating permit in the name of the MM Buyer or an affiliate of the MM Buyer;

and (2) the MM Buyer replacing the Seller’s surety bond with a reclamation performance bond, letter of credit or other form of security to which the MM Buyer or an affiliate of the MM Buyer is the principal that is satisfactory to the Commission.

As of December 31, 2022, Marshall Mine, LLC had outstanding liabilities of approximately $4.9 million, which we expect to be fully discharged upon payment of the MM Sale.

We currently expect to close the MM Sale during the first half of 2023.

However, since the Closing Date is uncertain, primarily due to the uncertain date for the Parties to receive approval of the MM Buyer's operating permit and surety bond by the Commission, we are unable to determine the accounting period in which we will recognize the MM Sale.

Significant Transactions Occurring in 2023

Arq Acquisition

As previously discussed in Part I - Item 1.

"Business" ("Item 1") of this Report, on February 1, 2023, we executed the Purchase Agreement and completed the Arq Acquisition through the issuance to Arq Ltd.

of shares of our common stock and Series A Preferred Stock in exchange for all of the direct and indirect equity interests of Arq Ltd.'s subsidiaries.

We accounted for the Arq Acquisition as an acquisition of a business as of the Acquisition Date.

The total Purchase Consideration was $31.2 million based on the combined estimated fair values of the shares of Common Stock issued of $12.4 million and the shares of Series A Preferred Stock issued of $18.8 million.

Arq's principal office is located in London, United Kingdom, with additional offices located in Lexington and Corbin, Kentucky, near its main production facility.

Arq is an environmental technology company that has developed a process for transforming coal waste into a purified, microfine carbon powder (Arq Powder) that can be used as an alternative to oil or in-ground mined coal to produce a range of carbon products.

With the completion of the Arq Acquisition, we intend to first sell Arq Powder as a carbon filler for rubber composites and as a component for asphalt with an opportunity to evaluate expanding into other carbon products.

See further discussion of the Arq Acquisition and the material terms of the Series A Preferred Stock in Item 1.

PIPE Investment

As further described in Item 1 of this Report, on February 1, 2023, we closed the PIPE Investment for an aggregate purchase price of approximately $15.4 million and at a purchase price per common share of $4.00.

Loan Agreement

As further described in Item 1 of this Report, on February 1, 2023, ADES, as borrower, certain of its subsidiaries, as guarantors, and CF Global, as administrative agent and lender, entered into the Loan Agreement.

The Term Loan has a term of 48 months and bears interest at a rate equal to either (a) Adjusted Term SOFR (subject to a 1.00% floor and a 2.00% cap) plus a margin of 9.00% paid in cash and 5.00% paid in kind or (b) Base Rate plus a margin of 8.00% paid in cash and 5.00% paid in kind, which interest on the Term Loan in each case shall be payable (or capitalized, in the case of in kind interest) quarterly in arrears.

The Term Loan is secured by substantially all of the assets of ADES and its subsidiaries (including those acquired in the Transaction), subject to customary exceptions.

In addition, and in connection with the Loan Agreement and as consideration for the Term Loan, we agreed to issue CF Global the Warrant to purchase 325,457 shares of Common Stock.

The Warrant has an exercise price of $0.01 per share, subject to adjustment as set forth in the Warrant, is exercisable immediately and will expire on January 31, 2030.

The terms of the Warrant do not allow for cash exercise, and the Warrant may only be exercised pursuant to the terms thereof.

See discussion of additional material terms of the Loan Agreement in "Liquidity and Capital Resources" of this Item 7 of this Report.

Termination of Transaction Agreement

As previously discussed in Item 1 of this Report, in connection with entry into the Purchase Agreement, the Transaction Agreement was terminated on February 1, 2023 pursuant to a termination agreement entered into by each of the parties to the Transaction Agreement.

The Transaction Agreement would have provided, subject to its terms and conditions, for a business combination of Arq and ADES.

By virtue of the termination of the Transaction Agreement, the Transaction Agreement became void and of no further force or effect, with no liability of the part of any party to the Transaction Agreement.

Components of Revenue, Expenses and Equity Method Investees

The following briefly describes the components of revenues and expenses as presented in the Consolidated Statements of Operations.

The following briefly describes the components of revenue and expenses as presented in the Consolidated Statements of Operations.

Descriptions of the revenue recognition policies are included in Note 1 to the Consolidated Financial Statements included in Item 8 of this Report.

Revenues and cost of revenues

We sell AC products and other chemical-based technology products to a broad range of customers, including coal-fired utilities, industrials, water treatment plants and other diverse markets.

Currently, our products mostly serve coal-fired utilities and other industrial boilers that allow the respective utilities to comply with the regulatory air emissions standards and water treatment plants to remove contaminants from the water.

Additionally, we sell AC to Norit and its customers through the Supply Agreement.

Consumables cost of revenues

Consumables cost of revenues includes all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the Company’s production of revenues.

License royalties earned from Tinuum Group

Through December 2021, we generated revenues from royalties ("M-45 Royalties") earned under a licensing arrangement ("M-45 License") of our M-45 TM and M-45-PC TM emissions control technologies ("M-45 Technology") between us and Tinuum Group, a related party.

We recognized M-45 Royalties at a point in time based on the use of the M-45 Technology at certain RC facilities (the "M-45 Facilities") or through Tinuum Group’s use of licensed technology for rates in excess of amounts allowed for RC application.

The amount of M-45 Royalties recognized was generally based on a percentage of pre-tax margins (as defined in the M-45 License) of the M-45 Facilities.

With the expiration of the Section 45 tax credit program as of December 31, 2021, we no longer earn such royalties.

Revenue and cost of revenue

Our revenue is comprised of the sale of AC products and other chemical-based technology products in the APT market, as well as the sale of other AC products to our largest customer, who services other diverse markets.

Consumables cost of revenue

Consumables cost of revenue is comprised of all labor, fringe benefits, subcontract labor, additive and coal costs, materials, equipment, supplies, travel costs and any other costs and expenses directly related to the cost of production of consumables.

License royalties payable to Tinuum Group

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby we pay Tinuum Group a royalty (the "Tinuum Group Royalty") for certain of our sales of its M-Prove TM products after the expiration of the Section 45 Tax Credit Program (beginning January 1, 2022) to certain of the M-45 Facilities.

In December 2022, the Company and Tinuum Group entered into an agreement (the "Tinuum Group Royalty Agreement") whereby we pay Tinuum Group a royalty (the "Tinuum Group Royalty") for certain of our sales of M-Prove TM products after the expiration of the tax credit program under IRC Section 45 ("Section 45 Tax Credit Program") (beginning January 1, 2022) to certain of the M-45 Facilities.

The Tinuum Group Royalty is calculated based on "Net Profit" (as defined in the Tinuum Royalty Agreement) on our sales of M-Prove TM product to certain of the M-45 Facilities.

The Tinuum Group Royalty Agreement is for an initial term of five years with automatic renewals of five years unless we and Tinuum Group agree to terminate it.

The Tinuum Group Royalty is included in Consumables cost of revenue.

Other Operating Expenses

Payroll and benefits

Payroll and benefits costs include personnel related fringe benefits, sales and administrative staff labor costs and stock compensation expenses.

Payroll and benefits costs exclude direct labor included in Cost of revenues.

Payroll and benefits costs include payroll costs, payroll related fringe benefits and stock based compensation expense of research and development, sales and administrative personnel, but exclude such costs related to direct labor that are included in Cost of revenue.

Legal and professional fees

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General and administrative costs include director fees and expenses, bad debt expense, research and development expense and other general costs of conducting business.

Research and development costs, net of reimbursements from cost-sharing arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.

Research and development costs provided by third parties, net of reimbursements from cost-sharing arrangements, are charged to expense in the period incurred and are reported in the General and administrative line item in the Consolidated Statements of Operations.

Depreciation, amortization, depletion and accretion

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Earnings from equity method investments

Earnings from equity method investments represent our share of earnings (losses) related to our equity method investments.

Through December 31, 2021, we had substantial earnings from Tinuum Group and Tinuum Services.

With the expiration of the Section 45 tax credit program as of December 31, 2021, both Tinuum Group and Tinuum Services commenced winding down their operations related to the Section 45 tax credit program, although we have recognized earnings in 2022 related to cash distributions received.

Earnings from equity method investments represent our share of earnings (losses) related to equity method investments, and in 2023, primarily from Tinuum Group.

Through December 31, 2021, we had substantial earnings from Tinuum Group and Tinuum Services, LLC ("Tinuum Services").

With the expiration of the tax credit program under IRC Section 45 afforded to producers of refined coal as of December 31, 2021, both Tinuum Group and Tinuum Services commenced winding down their operations related to the Section 45 tax credit program, although we have recognized earnings in both 2022 and 2023 related to residual cash distributions received.

Other income (expense)

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The year-to-year comparison of financial results is not necessarily indicative of financial results that may be achieved in future years.

Our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2021 in Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Our Annual Report on Form 10-K for the year ended December 31, 2023 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022, disclosed in Item 7 of Part II, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Year ended December 31, 2023 Compared to Year ended December 31, 2022

Total Revenues and Cost of Revenues

A summary of the components of revenues and cost of revenue for the years ended December 31, 2022 and 2021 is as follows:

Total Revenue and Cost of Revenue

A summary of the components of revenue and cost of revenue for the years ended December 31, 2023 and 2022 is as follows:

Years Ended December 31, Change

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Consumables $ 99,183 $ 102,987 $ (3,804) (4) %

License royalties, related party — 14,368 (14,368) (100) %

Other — 44 (44) (100) %

Total revenues $ 102,987 $ 100,294 $ 2,693 3 %

Consumables cost of revenues, exclusive of depreciation and amortization $ 80,465 $ 65,576 $ 14,889 23 %

Consumables revenues and consumables cost of revenues

For the years ended December 31, 2022 and 2021, consumables revenue increased year over year primarily driven by higher volumes sold, which comprised $11.8 million of the total change.

Product volumes were higher among power generation customers primarily due to higher natural gas prices and higher demand for electricity compared to 2021, which contributed to increased utilization of coal-fired generation and increased demand for our products.

Total consumables revenues also increased due to improved pricing for our products by approximately $6.3 million from 2021.

Offsetting these increases to Consumable revenue was the impact of unfavorable product mix of approximately $1.4 million for the year ended December 31, 2022 compared to 2021.

Our Consumables gross margin, exclusive of depreciation and amortization, decreased for the year ended December 31, 2022 compared to 2021.

For the year ended December 31, 2022, our consumables gross margin was negatively impacted by higher prices for key raw materials, transportation, including fuel, and other operational costs to produce and deliver our products, as well as an increase in the amount of third-party carbons purchased in order to meet customer demand for our products and supplement the higher operating utilization of the Red River Plant.

Also negatively impacting Consumables gross margin for the year ended December 31, 2022 included $0.8 million of Tinuum Group Royalties.

Offsetting these negative impacts were higher sales volumes, increases in the prices of our products implemented during the first half of 2022 and incremental positive impact from net electricity generated.

Total revenue $ 99,183 $ 102,987 $ (3,804) (4) %

Consumables cost of revenue, exclusive of depreciation and amortization $ 67,323 $ 80,465 $ (13,142) (16) %

Consumables revenue and consumables cost of revenue

For the years ended December 31, 2023 and 2022, consumables revenue decreased year over year primarily driven by lower volumes sold, which comprised $20.0 million of the total change.

Product volumes decreased among power generation customers, primarily due to lower natural gas prices compared to 2022, which contributed to decreased utilization of coal-fired generation and decreased demand for our products.

Partially offsetting the decrease was an increase due to improved pricing for our products of approximately $10.6 million, $4.7 million of revenue recognized from the settlement of certain contracts with customers containing minimum quantity purchases ("MQ Contacts") and the impact of favorable product mix of approximately $0.7 million.

Consumables gross margin, exclusive of depreciation and amortization, increased for the year ended December 31, 2023 compared to 2022.

Driving the increase in gross margin were the impact of the MQ contracts and decreased cost of our feedstock and additives, primarily as a result of decreased production volumes during 2023.

Our consumables gross margin was negatively impacted by a decrease in volumes sold.

Consumables revenue continues to be affected by electricity demand, driven by seasonal weather and related power generation needs, as well as competitor prices related to alternative power generation sources such as natural gas and renewables.

For 2023, and based on current market estimates, we believe there will be a slight increase in Consumables revenue, driven by changes to customer and product mix, and overall improvements in pricing.

However, we expect to see slight decreases in volumes compared to 2022 due to prices of alternative energy sources impacting the demand for our AC and chemical products related to power generation.

There is risk to our outlook driven by inflationary pressures increasing our overall operating costs for our manufacturing operations as well as the impact of the 2023 Red River Plant turnaround.

License royalties, related party

As discussed above, Tinuum Group ceased operation as of December 31, 2021, and as a result, we did not recognize any revenues from license royalties from Tinuum Group for the year ended December 31, 2022.

Other Operating Expenses

A summary of the components of our operating expenses, exclusive of cost of revenues items (presented above), for the years ended December 31, 2022 and 2021 is as follows:

A summary of the components of our operating expenses, exclusive of cost of revenue items (presented above), for the years ended December 31, 2023 and 2022 is as follows:

Years Ended December 31, Change

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Depreciation, amortization, depletion and accretion 10,543 6,416 4,127 64 %

Loss (gain) on change in estimate, asset retirement obligation 34 (2,702) 2,736 (101) %

Gain on sale of Marshall Mine, LLC (2,695) — (2,695) *

Other (36) 34 (70) (206) %

$ 45,195 $ 34,590 $ 10,605 31 %

* Calculation not meaningful

Payroll and benefits

Payroll and benefits expenses decreased year over year primarily due to a decrease in payroll-related expenses of $1.0 million as our headcount decreased year over year.

Partially offsetting these decreases was an increase in expense of $0.2 million related to the Amended Retention Agreements, which were agreements between the Company and its executive officers and certain other key employees in order to maintain the Company's business operations while it pursued and executed on its strategic initiatives.

Payroll and benefits expenses increased year over year primarily due to the addition of Legacy Arq employees, which increased expenses by $4.9 million for the year, of which $1.1 million related to severance expense of former executives of Legacy Arq.

In addition, for the year ended December 31, 2023, we incurred severance related costs of $1.7 million associated with the termination of three executive employees.

These increases were partially offset by a decrease in incentive compensation related

to non-Legacy Arq employees for the year ended December 31, 2023 of $1.3 million compared to the corresponding period in 2022.

An additional decrease in payroll and benefits was due to retention bonuses with our executive officers and certain other key employees of $1.2 million, which were paid in full in January 2023.

Legal and professional fees

Legal and professional fees increased year over year as a result of an increase in costs incurred related to the Arq Acquisition.

The increase was comprised mostly of legal and consulting fees of $0.9 million and $1.9 million, respectively.

In addition, there was an increase in accounting related fees of approximately $0.4 million year over year.

Legal and professional fees remained flat year over year.

General and administrative

General and administrative expenses increased year over year primarily due to increases in director compensation, travel and recruiting expenses, of approximately $0.7 million.

Additionally, rent and occupancy related expenses increased year over year by $0.3 million.

General and administrative expenses increased for the year ended December 31, 2023 compared to the corresponding period in 2022 as a result of $2.5 million of expenses incurred on behalf of Legacy Arq, which included $1.2 million from rent and occupancy expense from additional leased space.

Additional increases period over period of approximately $2.0 million were due to increases in insurance, research and development, travel, recruiting and other outside labor, and director compensation as three new directors were added to the board in connection with the Arq Acquisition.

Depreciation, amortization, depletion and accretion

Depreciation and amortization expense decreased year over year primarily due to higher production volumes during the year ended December 31, 2022, resulting in $0.9 million less absorption of depreciation in inventory.

Further driving the decrease was a reduction in accretion expense of $0.5 million related to the reduction of the Marshall Mine ARO compared to prior year and a decrease in amortization expense of $0.4 million related to patents.

Offsetting these decreases was an increase in depreciation expense of $0.2 million related to fixed asset additions during the year ended December 31, 2022.

Loss (gain) on change in estimate, asset retirement obligation

For the year ended December 31, 2022, we recorded a loss on change in estimate of $34 thousand primarily based on a change in the timing of estimated payments for future reclamation requirements of the Marshall Mine.

For the year ended December 31, 2021, we recorded a gain on change in estimate of $2.7 million related to a reduction in scope of our estimated future reclamation efforts of the Marshall Mine.

Depreciation and amortization expense increased for the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to depreciation and amortization of approximately $2.8 million from the addition of long-lived assets and intangible assets acquired in the Arq Acquisition.

Also contributing to the increase was an increase in Depreciation and amortization expense due to higher production volumes compared to sales volumes which resulted in $1.0 million additional absorption of depreciation in inventory.

Gain on sale of Marshall Mine, LLC

As discussed above, for the year ended December 31, 2023, we recognized a gain of $2.7 million on the sale of Marshall Mine, LLC.

Other Income (Expense), net

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2023 2022 ($) (%)

Other income (expense):

Other income, net:

Earnings from equity method investments $ 1,623 $ 3,541 $ (1,918) (54) %

Gain on extinguishment of debt — 3,345 (3,345) (100) %

Interest expense (3,014) (336) (2,678) 797 %

Other 2,630 155 2,475 1,597 %

Total other income $ 3,360 $ 71,221 $ (67,861) (95) %

Total other income, net $ 1,239 $ 3,360 $ (2,121) (63) %

Earnings from equity method investments

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Earnings from Tinuum Services 475 85 390 459 %

Earnings (loss) from other 1 (63) 64 (102) %

Earnings from other — 1 (1) (100) %

Earnings from equity method investments $ 1,623 $ 3,541 $ (1,918) (54) %

For the year ended December 31, 2022, we recognized $3.5 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net loss of $1.3 million for the year.

For the year ended December 31, 2021, we recognized $61.8 million in equity earnings from Tinuum Group compared to our proportionate share of Tinuum Group's net income of $40.1 million.

The difference between our pro-rata share of Tinuum Group's net (loss) income and our equity earnings from Tinuum Group as reported on the Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Group being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

For the year ended December 31, 2022, we recognized $0.1 million in equity earnings from Tinuum Services compared to our proportionate share of Tinuum Services' net loss of $0.1 million for this period.

The difference between our pro-rata share of Tinuum Services' net loss and our earnings from the Tinuum Services equity method investment as reported on the Consolidated Statements of Operations is the result of cumulative distributions received from Tinuum Services being in excess of the carrying value of the investment, and therefore we recognize such excess distributions as equity method earnings in the period the distributions occur.

For the year ended December 31, 2021, we recognized $7.7 million in equity earnings from Tinuum Services, which was our proportionate share of Tinuum Services' net income of $15.4 million for the year.

As of December 31, 2021, we concluded the carrying amount of our investment in Tinuum Services was not fully recoverable due to the remaining expected future cash distributions expected to be received as Tinuum Services shuttered its operations in 2022 as a result of the expiration of the Section 45 tax credit period as of December 31, 2021.

As a result, we wrote-down our investment in the amount of $0.7 million, which is included in the "Earnings from equity method investments" line item in the Consolidated Statement of Operations for the year ended December 31, 2021.

Gain on extinguishment of debt

For the year ended December 31, 2021, we recorded a gain on extinguishment of debt in the amount of $3.3 million from a loan that we had entered into during 2020 under the Paycheck Protection Program.

The loan was formally forgiven in July 2021.

Earnings from equity method investments for the year ended December 31, 2023 and 2022 represented cash distributions received from Tinuum Group and Tinuum Services.

The decrease was primarily due to Tinuum Group and Tinuum Services continuing to wind down their operations in 2023.

Interest expense

Interest expense decreased year over year by $1.2 million primarily due to the pay-off of a senior term loan as of June 1, 2021.

Interest expense increased for the year ended December 31, 2023 compared to the corresponding period in 2022 primarily due to interest expense of $2.0 million related to the $10 million CFG Loan and interest expense of $0.5 million incurred for the same period related to the $10 million CTB Loan assumed by us in the Arq Acquisition.

The increase in Other is primarily driven by interest income of $1.8 million generated from the use of cash sweep accounts in 2023.

Income tax expense

For the year ended December 31, 2023, our reported income tax expense was $0.2 million and was based on an effective rate of (1)%.

The difference between our reported income tax expense and the expected federal benefit, as a result of pretax loss recognized for the year ended December 31, 2022, was primarily due to permanent differences related to acquisition-related costs, an increase in the valuation allowance on our deferred tax assets and state income taxes, net of federal benefit.

For the year ended December 31, 2021, our reported income tax expense of $15.7 million and was based on an effective rate of 21%.

While the Federal Rate was also 21%, our effective tax rate was primarily increased by state income tax expense, net of federal benefit and primarily decreased from a reduction in the valuation allowance on our deferred tax assets.

The difference between our reported income tax expense and the expected federal benefit, as a result of pretax loss recognized for the year ended December 31, 2023, was primarily due to permanent differences related to acquisition-related costs, an increase in the valuation allowance on our deferred tax assets and stock-based compensation.

For the year ended December 31, 2022, our reported income tax expense was $0.2 million and was based on an effective rate of (2)%.

The difference between our reported income tax expense and the expected federal benefit, as a result of pretax loss recognized for the year ended December 31, 2023, was primarily due to permanent differences related to acquisition-related costs and an increase in the valuation allowance on our deferred tax assets.

Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an assessment of the amount of the deferred tax asset that is "more likely than not" to be realized.

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See additional discussion in Note 13 of the Consolidated Financial Statements included in Item 8 of this Report.

Tax Credits and Obligations

Through December 31, 2021, we earned substantial tax credits under the Section 45 tax credit program, which program expired on December 31, 2021.

Through December 31, 2021, we earned substantial tax credits under the Section 45 tax credit program, which expired on December 31, 2021.

As of December 31, 2023, we had approximately $86.1 million in Section 45 tax credit carryforwards.

In the hypothetical event of an ownership change, as defined by IRC Section 382, utilization of general business credits ("Tax Credits") generated prior to the change would be subject to an annual limitation imposed by IRC Section 383 for Tax Credits.

The results of a recent analysis indicated that we had not experienced an ownership change as of December 31, 2022, as defined by IRC Section 382.

We performed an IRC Section 382 analysis related to the Arq Acquisition and PIPE Investment and determined we had not experienced an ownership change as of the Acquisition Date.

Such analysis for the period from the Acquisition Date through the date of this Report has not been completed.

Therefore, it is possible that we experienced an ownership change between the Acquisition Date and the date of the filing of this Report, thus subjecting our Tax Credit carryforwards to limitation.

In the hypothetical event of an "ownership change," as defined by IRC Sections 382, utilization of general business credits ("Tax Credits") generated prior to the change would be subject to an annual limitation imposed by IRC Section 383 for Tax Credits.

In connection with the Arq Acquisition and PIPE Investment, we issued additional shares of our common stock.

We performed an IRC Section 382 analysis as of the Acquisition Date and determined that we had not experienced an ownership change as of that date.

Prior to the Acquisition Date, Legacy Arq completed numerous equity offerings that resulted in ownership changes.

We have not completed a formal IRC Section 382 analysis of Legacy Arq equity changes from its inception through the Acquisition Date, however, we believe that one or more "ownership changes" occurred during this time period as defined under Sections 382 and 383 and that a portion or all the Legacy Arq Tax Assets may subject to an annual limitation.

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with accounting principles generally accepted in the United States ("GAAP"), we provide non-GAAP measures of certain financial performance.

These non-GAAP measures include EBITDA (EBITDA Loss) and Adjusted EBITDA (EBITDA Loss).

We have included these non-GAAP measures because management believes that they help to facilitate period to period comparisons of our operating results and provide useful information to both management and users of the financial statements by excluding certain expenses, gains and losses which may not be indicative of core operating results and business outlook.

Management uses these non-GAAP measures in evaluating the performance of our business.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies.

In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles.

These measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures.

We define EBITDA (EBITDA Loss) as net income (loss) adjusted for the impact of the following items that are either non-cash or that we do not consider representative of our ongoing operating performance:

depreciation, amortization, depletion, accretion, amortization of upfront customer consideration that was recorded as a component of the Marshall Mine Acquisition ("Upfront Customer Consideration"), interest expense, net and income tax expense.

We define Adjusted EBITDA (EBITDA Loss) as EBITDA (EBITDA Loss), reduced by the non-cash impact of equity earnings from equity method investments, gain on change in estimate of asset retirement obligations and gain on extinguishment of debt, and increased by cash distributions from equity method investments, loss on early settlement of the Norit Receivable and the change in AROs as a result of a change in estimate.

Because Adjusted EBITDA (EBITDA Loss) omits certain non-cash items, we believe that the measure is less susceptible to variances that affect our operating performance.

When used in conjunction with GAAP financial measures, we believe these non-GAAP measures are supplemental measures of operating performance which explain our operating performance for our period to period comparisons and against our competitors' performance.

Generally, we believe these non-GAAP measures are less susceptible to variances that affect our operating performance results.

We expect the adjustments to EBITDA (EBITDA Loss) and Adjusted EBITDA (EBITDA Loss) in future periods will be generally similar.

These non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analyzing our results as reported under GAAP.

Reconciliation of Net (loss) income to (EBITDA Loss) EBITDA and Adjusted EBITDA

The following table reconciles net (loss) income, our most directly comparable as-reported financial measure calculated in accordance with GAAP, to (EBITDA Loss) EBITDA and Adjusted EBITDA.

To supplement our financial information presented in accordance with U.S.

Generally Accepted Accounting Principles ("GAAP"), we provide certain supplemental financial measures, including EBITDA and Adjusted EBITDA, which are measurements that are not calculated in accordance with U.S.

Generally Accepted Accounting Principles ("GAAP").

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and Adjusted EBITDA is defined as EBITDA reduced by the non-cash impact of equity earnings from equity method investments and gain on sale of the Marshall Mine, increased by cash distributions from equity method investments, loss on early settlement of a long-term receivable and loss on change in estimate, asset retirement obligations.

EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance.

See below for a reconciliation from Net income, the nearest GAAP financial measure, to EBITDA and Adjusted EBITDA.

We believe that the EBITDA and Adjusted EBITDA measures are less susceptible to variances that affect the Company's operating performance.

We include these non-GAAP measures because management uses them in the evaluation of our operating performance, and believe they help to facilitate comparison of operating results between periods.

We believe the non-GAAP measures provide useful information to both management and users of the financial statements by excluding certain expenses, gains, and losses which can vary widely across different industries or among companies within the same industry and may not be indicative of core operating results and business outlook.

EBITDA and Adjusted EBITDA

The following table reconciles net loss, our most directly comparable as-reported financial measure calculated in accordance with GAAP to EBITDA, (EBITDA Loss), (Adjusted EBITDA Loss) and Adjusted EBITDA.

Year ended December 31,

Net (loss) income (1) $ (8,917) $ 60,401

$ (12,249) $ (8,917)

Depreciation, amortization, depletion and accretion 10,543 6,416

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Income tax expense 153 209

(EBITDA Loss) EBITDA (1,687) 85,678

EBITDA (EBITDA Loss) 123 (1,687)

Cash distributions from equity method investees 1,623 5,933

Equity earnings (1,623) (3,541)

Gain on extinguishment of debt — (3,345)

Gain on sale of Marshall Mine, LLC (2,695) —

Loss (gain) on change in estimate, asset retirement obligation (37) 34

Loss on early settlement of Norit Receivable 535 —

Adjusted EBITDA $ 1,274 $ 84,931

(1) Included in Net loss for the year ended December 31, 2022, was $5.0 million of transactions costs incurred related to the Arq Acquisition.

Loss on early settlement of an account receivable — 535

Adjusted (EBITDA Loss) EBITDA $ (2,609) $ 1,274

(1) Included in Net loss for the year ended December 31, 2023 and 2022 was $4.9 million and $5.0 million, respectively, of transaction and integration costs incurred related to the Arq Acquisition.

Additionally, for the year ended December 31, 2023, Net loss included $4.9 million of Legacy Arq payroll and benefit costs and $1.7 million of severance expense related to three executive employees.

Liquidity and Capital Resources

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As of December 31, 2023, our principal future sources of liquidity included:

• cash on hand, excluding restricted cash of $10.0 million pledged as collateral under a surety bond agreement;

• cash on hand, excluding restricted cash of $8.8 million primarily pledged as collateral under a surety bond agreement;

• our operations

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• payments on our lease obligations;

• payments for reclamation associated with the Five Forks Mine and Marshall Mine.

On February 1, 2023, we closed the PIPE Investment for an aggregate purchase price of $15.4 million.

Further, on February 1, 2023 we entered into the Loan Agreement for $10.0 million, of which we received $8.5 million net proceeds.

Due to the expiration of the Section 45 tax credit period as of December 31, 2021, and the resultant wind down of Tinuum Group's and Tinuum Services' operations in 2022, distributions from Tinuum Group and Tinuum Services are no longer a significant source of liquidity.

• payments for reclamation associated with the Five Forks Mine;

• payment required under the sale of Marshall Mine, LLC.

On February 1, 2023, in connection with the Arq Acquisition, we closed the PIPE Investment for an aggregate purchase price of $15.4 million.

Further, on February 1, 2023 we entered into the CFG Loan Agreement for $10.0 million, of which we received $8.5 million net proceeds.

Tinuum Group and Tinuum Services Distributions

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Cash flows from operating activities

Cash flows used in operating activities for the year ended December 31, 2022 was $6.1 million compared to cash flows provided by operating activities of $26.0 million for the year ended December 31, 2021.

The net decrease was primarily due to the following:

(1) a net change in net income (loss) of $69.3 million year over year as a result of net loss recognized for the year ended December 31, 2022;

Cash flows used in operating activities for the year ended December 31, 2023 was $16.7 million compared to cash flows used in operating activities of $6.1 million for the year ended December 31, 2022.

The increase in cash used in operating activities was primarily due to the following:

(1) an increase in net loss of $3.3 million year over year;

(2) a $2.7 million gain on the sale of the Marshall Mine, LLC;

(3) a decrease in Distributions from equity method investees, return on investment of $2.3 million year over year;

and (3) a decrease in the change in net working capital of $7.1 million year over year.

Offsetting the net decrease in cash flows used in operating activities year over year were a decrease in Earnings from equity method investments of $65.2 million and Gain on extinguishment of debt of $3.3 million recorded in 2021.

and (4) a net decrease in working capital of $8.9 million primarily as a result of significant payments made in 2023 on accounts payable and accrued expenses assumed in the Arq Acquisition.

Offsetting the net increase in cash flows used in operating activities year over year were (1) an increase in Depreciation, amortization, depletion and accretion of $4.1 million;

and (2) a decrease in Earnings from equity method investments of $1.9 million.

Cash flows from investing activities

Cash flows used in investing activities for the year ended December 31, 2022 was $4.6 million compared to cash flows provided by investing activities of $44.4 million for the year ended December 31, 2021.

The decrease was primarily due to a decrease in distributions from equity earnings in excess of cumulative earnings of $47.4 million and an increase in acquisitions of property and equipment year over year.

Cash flows used in investing activities for the year ended December 31, 2023 was $28.5 million compared to cash flows used in investing activities of $4.6 million for the year ended December 31, 2022.

The increase was primarily due to an increase in acquisition of property, equipment and intangibles, net, of $18.6 million primarily related to acquisition costs related to the Arq Acquisition, a payment of $2.2 million related to the disposal of Marshall Mine, LLC, increased mine development costs of $2.1 million, and a decrease in distributions from equity earnings in excess of cumulative earnings of $2.0 million.

Offsetting the net increase in cash flows used in investing activities year over year was $2.2 million cash acquired as part of the Arq Acquisition.

Cash flows from financing activities

Cash flows used in financing activities for the year ended December 31, 2022 decreased by $15.9 million compared to the year ended December 31, 2021 primarily due to the pay-off of a senior term loan of $16.0 million in 2021.

Cash flows provided by (used in) financing activities for the year ended December 31, 2023 increased by $24.6 million compared to the year ended December 31, 2022 primarily due to proceeds from common stock issued of $16.2 million,

including $1.0 million of proceeds from common stock issued to related parties, and net proceeds from the issuance of the CFG Loan Agreement of $8.5 million.

Material Cash Requirements

Our ability to continue to generate sufficient cash flow required to meet ongoing operational needs and obligations depends upon several factors.

These include executing on our contracts and initiatives and increasing our share of the market for APT consumables, including expanding our overall AC business into additional adjacent markets and improving our customer and product mix.

We expect that our cash on hand as of December 31, 2022, as well as the cash proceeds related to the PIPE Investment and Term Loan, will provide sufficient liquidity to fund operations for the next 12 months.

Based on current operating levels, we expect that our cash on hand as of December 31, 2023 will provide sufficient liquidity to fund operations for the next 12 months.

Capital expenditures

For 2023, we expect to spend between $40.0 million and $45.0 million in capital expenditures compared to $9.5 million incurred in 2022.

Of the capital expenditures forecasted in 2023, approximately 65% is expected to go towards growth projects as part of the Arq Acquisition and the remaining 35% is forecasted for improvements to the Red River Plant and Five Forks Mine, including our planned plant turnaround.

Capital expenditures planned for 2023 are dependent on many factors, including the approval of certain environmental permits.

Approval of such permits can impact the timing and amount of capital expenditures.

Retention Agreements

In August 2022, we paid $1.0 million pursuant to the payment terms of the Amended Retention Agreements.

As of December 31, 2022, the remaining outstanding amount due under the Amended Retention Agreements was $1.4 million, which was paid on January 27, 2023.

Five Forks Mine and Marshall Mine Reclamation Obligations

As of December 31, 2022, we had outstanding surety bonds with regulatory commissions totaling $24.1 million related to both the Five Forks Mine and Marshall Mine.

As of December 31, 2022, and as required by our surety bond provider, we held restricted cash of $10.0 million pledged as collateral related to performance requirements required under reclamation contracts for both the Five Forks Mine and Marshall Mine.

We have targeted the end of 2024 for the completion of our Red River Plant expansion that is necessary to commence production of our new GAC products.

To meet this target, we will incur substantial capital spend in excess of our originally forecasted amount for additional equipment, labor, and project costs.

The Company anticipates financing the timely completion of the project funded with cash on hand, cash generation, ongoing cost reduction initiatives, potential customer prepayments for GAC contracts, and a planned refinancing and potential expansion of our term loan.

If we are not able to secure additional financing, the project timeline for our Red River Plant expansion may be delayed beyond the end of 2024.

During 2024, we expect to spend between $45 and $50 million on the Red River Plant expansion, depending on the pace of the project, as well as between $5 and $10 million to complete our commissioning of the Corbin Facility.

Capital expenditures planned for 2024 are dependent on many factors, including the ability to raise additional funding and approval of certain environmental permits, both of which may impact the timing and amount of capital expenditures.

As of December 31, 2023, we had outstanding surety bonds with regulatory commissions totaling $11.2 million primarily related to the Five Forks Mine and the Corbin Facility.

As of December 31, 2023, and as required by our surety bond provider, we held restricted cash of $8.5 million pledged as collateral related to performance requirements required under a reclamation contract for the Five Forks Mine and the Corbin Facility.

We expect that the obligations secured by these surety bonds will be performed in the ordinary course of business and in accordance with the applicable contractual terms.

To the extent that the obligations are performed, the related surety bonds should be released and collateral requirements reduced.

To the extent that the obligations are performed, the related surety bonds may be released and collateral requirements may be reduced.

However, in the event any surety bond is called, our indemnity obligations could require us to reimburse the surety bond provider.

We intend to fund our mine reclamation costs associated with both the Five Forks Mine and Marshall Mine from cash on hand.

On September 2, 2022, we executed the sale of all of our equity interests in Marshall Mine, LLC.

We expect to close this transaction in the first half of 2023 at which time, we expect to fully discharge all liabilities associated with reclamation and also reduce both the surety bond and collateral requirements, as we will only be obligated for future reclamation costs for the Five Forks Mine.

Arq Reclamation Obligations

As of the Acquisition Date, we assumed surety bonds of Arq held with regulatory commissions totaling approximately of $3.0 million, of which approximately $2.9 million are related to the Corbin facility.

Long Term Requirements

For a discussion of our long-term cash requirements, see Item 8.

Note 6 of this Report.

Contractual Obligations

Contractual obligations as of December 31, 2023 are as follows:

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(in thousands) Total Less than 1 year 1-3 years 4-5 years After 5 years

CFG Loan $ 12,199 $ — $ — $ 12,199 $ —

CTB Loan 13,413 1,110 2,220 2,220 7,863

Finance lease obligations 3,666 2,274 1,307 85 —

Operating lease obligations 18,559 3,139 5,747 2,595 7,078

Reclamation obligation, Marshall Mine 4,679 4,679 — — —

$ 47,837 $ 6,523 $ 9,274 $ 17,099 $ 14,941

(1) Includes total rental payments of $3.3 million under corporate headquarters and primary laboratory lease executed in November 2022 with lease commencement date of May 1, 2023.

The table above excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine (the "Five Forks ARO"), as the timing and amount of payments to satisfy the Five Forks ARO are uncertain and are based on numerous factors including, but not limited to, the Five Forks Mine expected closure date.

As of December 31, 2022, our Consolidated Balance Sheet reflects a liability of $3.9 million for the Five Forks ARO.

Loan Agreement

Under the terms of the Term Loan, executed on February 1, 2023, we are permitted to prepay the Term Loan at any time subject to the following prepayment premium:

(i) prior to the twelve (12) month anniversary of the Closing Date, the Make-Whole Amount (as defined below), (ii) thereafter but prior to the thirty-six (36) month anniversary of the Closing Date, 2.00% of the outstanding principal amount of the Term Loan being repaid or prepaid or (iii) thereafter until the maturity date, 1.00% of the outstanding principal amount of the Term Loan being repaid or prepaid.

The “Make-Whole Amount”, with respect to any repayment or prepayment, is (i) an amount equal to all required interest payable (except for currently accrued and unpaid interest) on the aggregate principal amount of the Term Loan subject to such prepayment or repayment from the date of such prepayment or repayment through but excluding the date that is the first anniversary of the Closing Date calculated using an interest rate equal to (x) Adjusted Term SOFR for an interest period of one month in effect on the third U.S.

Government Securities Business Day prior to such prepayment or repayment plus (y) 14.00% per annum and assuming all interest was paid in cash, plus (ii) a prepayment premium of 2.00% on the aggregate principal amount of the Term Loan subject to such prepayment or repayment.

The Loan Agreement includes, among others, the following covenants:

(1) beginning March 31, 2023 and as of the end of each fiscal quarter thereafter, we must maintain a minimum cash balance of $5.0 million;

(2) (x) as of December 31, 2023, for the fiscal year then ended, we must have a minimum annual revenue, on a consolidated basis, of $70.0 million, (y) as of December 31, 2024, for the fiscal year then ended, we must have a minimum annual revenue, on a consolidated basis, of $85.0 million and (z) for any fiscal year thereafter, we must have a minimum annual revenue, on a consolidated basis, of $100.0 million;

(3) (x) as of December 31, 2024, for the fiscal year then ended, we must have a minimum EBITDA of $3.0 million and (y) for any fiscal year thereafter, we must have a minimum EBITDA of $16.0 million;

and (4) beginning after the fiscal quarter ending September 30, 2023, during an LTV Trigger Period, we must not exceed a loan to value (based on the consolidated total assets of ADES and its subsidiaries) ratio of 0.40:1.00.

The table above excludes our asset retirement obligation ("ARO") related to reclamation of the Five Forks Mine, as the timing and amount of payments to satisfy the ARO are uncertain and are based on numerous factors including, but not limited to, the expected closure date of the Five Forks Mine.

As of December 31, 2023, our Consolidated Balance Sheet reflects a liability for AROs of $6.2 million.

Additionally, the table above excludes construction costs related to the Red River Plant expansion and Corbin Facility commissioning referred to under "Capital Expenditures" caption above, as the timing and amount of payments

to satisfy these obligations are conditional and based on numerous factors including, but not limited to, the pace of construction activities and the timing of mechanical completion of the Red River Plant expansion and commissioning activities at the Corbin Facility.

Critical Accounting Policies and Estimates

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Examples of critical estimates in valuing certain of long-lived assets, including intangible assets, we have acquired or may acquire in the future include but are not limited to:

• future expected cash flows from revenues;

• historical and expected customer attrition rates and anticipated growth in revenues from acquired customers;

• future expected cash flows from revenue;

• the acquired company’s developed technology as well as assumptions about the period of time the acquired developed technology will continue to be used in the combined company's product portfolio;

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• valuation methods and discount rates used in estimating the values of the assets acquired and liabilities assumed.

In regard to the Marshall Mine Acquisition, which we accounted for as an asset acquisition, we recorded the fair value of assumed assets, which included property, plant and equipment and spare parts and assumed liabilities.

In addition, we recorded other assets, including Upfront Customer Consideration and the Cabot Receivable, and a liability for the Marshall Mine ARO.

Carrying value of long-lived assets and intangibles

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Additionally, future changes to environmental laws and regulations could increase the scope of reclamation and remediation work required.

Five Forks Mine ARO - Reclamation costs related to the Five Forks Mine ARO 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 of the costs expected to be incurred.

Reclamation costs related to AROs 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 are accrued based on management’s best estimate 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.

We review, on at least an annual basis, the future expected costs and the timing of such costs for the Five Forks Mine ARO.

Marshall Mine ARO - Reclamation costs related to the Marshall Mine are based on a capped fee structure for a significant portion of the ARO liability 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 us and the Marshall Mine operator.

The timing of payments may vary, and in valuing the Marshall Mine ARO, we account for these timing differences, as well as changes in actual reclamation costs, on a quarterly basis.

We review, on at least an annual basis, the future expected costs and the timing of such costs for AROs.

We account for income taxes under the asset and liability method, which requires judgment in determining income tax expense and the related balance sheet amounts.

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If and when our estimates change, or there is a change in the value of deferred tax assets or liabilities warranting the need to reassess the realizability of deferred tax assets, we adjust a valuation allowance through the provision for income taxes in the period in which this determination is made.

Refer to Note 13 of our Consolidated Financial Statements included in Item 8 of this Report for additional information regarding our deferred tax assets and liabilities and related deferred income tax expense (benefit).

Refer to Note 13 of our Consolidated Financial Statements included in Item 8 of this Report for additional information regarding our deferred tax assets and liabilities.

Recently Issued Accounting Standards

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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 7. Management’s Discussion and Analysis