ARCHAEA ENERGY INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

0
The following discussion and analysis should be read in conjunction with the
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K. This discussion contains forward-looking statements reflecting our
current expectations, estimates, and assumptions concerning events and financial
trends that may affect our future operating results or financial position.
Actual results and the timing of events may differ materially from those
contained in these forward-looking statements due to a number of factors,
including those discussed in the sections entitled "Risk Factors" and
"Cautionary Note Regarding Forward-Looking Statements" appearing elsewhere in
this Annual Report.

Overview

Archaea is one of the largest RNG producers in the U.S., with an
industry-leading RNG platform primarily focused on capturing and converting
waste emissions from landfills and anaerobic digesters into low-carbon RNG and
electricity. As of December 31, 2021, the Company owns, through wholly-owned
entities or joint ventures, a diversified portfolio of 29 LFG recovery and
processing projects across 18 states, including 11 operated projects that
produce pipeline-quality RNG and 18 LFG to renewable electricity projects. See "
- Our Production Facilities and Projects" for additional detail.

Archaea designs, constructs, and operates RNG facilities. We have entered into
long-term agreements with biogas site hosts which give us the rights to utilize
gas produced at their sites and to construct and operate facilities on their
sites to produce RNG and renewable electricity. As of December 31, 2021,
Archaea's development backlog includes 35 cumulative
                                       38

————————————————– ——————————

Contents


projects, including planned upgrades of certain operating RNG facilities over
time, opportunities to convert most of our renewable electricity facilities into
RNG facilities, and greenfield RNG development opportunities.

Our differentiated commercial strategy is focused on selling the majority of our
RNG volumes under long-term, fixed-price contracts to creditworthy partners,
including utilities, corporations, and universities, helping these entities
reduce greenhouse gas emissions and achieve decarbonization goals while
utilizing their existing gas infrastructure. We seek to mitigate our exposure to
commodity and Environmental Attribute pricing volatility by selling a majority
of our RNG and related Environmental Attributes under long-term contracts which
are designed to provide revenue certainty.

Our RNG production started during 2021 as a result of the acquisition of Aria in
connection to the Business Combinations and the commencement of operations in
April 2021 at the Boyd County facility. We have long-term off-take contracts
with creditworthy counterparties for the sale of RNG and related Environmental
Attributes. Certain long-term off-take contracts are accounted for as operating
leases and have no minimum lease payments. The rental income under these leases
is recorded as revenue when the RNG is delivered to the customer. RNG not
covered by off-take contracts is sold under short-term market based contracts.
When the performance obligation is satisfied through the delivery of RNG to the
customer, revenue is recognized. We usually receive payments from the sale of
RNG production within one month after delivery.

We also earn revenue by selling RINs, which are generated when producing and
selling RNG. These RINs are able to be separated and sold independent from the
RNG produced. When the RNG and RIN are sold on a bundled basis under the same
contract, revenue is recognized when the RNG is produced and the RNG and
associated RIN are transferred to a third party. The remaining RIN sales were
under short-term contracts independent from RNG sales, and revenue is recognized
when the RIN is transferred to a third party. We also generate and sell LCFS
credits at some of our RNG projects through off-take contracts similar to RINs.
LCFS is state level program administered by the CARB. LCFS credits are generated
as the RNG is sold as vehicle fuel in California.


There is a general lag in the generation and sale of RIN and LCFS credits
subsequent to a facility being placed into operation. While each new facility is
eligible to register under the federal Renewable Fuel Standard ("RFS") upon
initial production and pipeline injection, Archaea has external parties certify
its plants under EPA's voluntary Quality Assurance Plan ("QAP") in order to
maximize the value of its D3 RINs. The initial QAP review generally requires
evaluation of up to 90 days of operational data prior to achieving Q-RIN status.
Once registration is obtained from the EPA and Q-RIN status achieved, Archaea
can generate RINs. RINs are generated monthly for the previous month of
production, after which the RINs may be sold. Quarterly and annual reports are
required to maintain RFS registration and Q-RIN status for each facility.


LCFS registration requires a minimum of 90 days operational data for a
provisional pathway application. Following the application submission, there is
a mandatory third-party validation period ranging from three to six months.
During this time, LCFS credits can be generated for the facility using a
temporary carbon intensity (CI) score, which is typically higher than the
expected certified CI for our facilities. Following successful pathway
validation, the facility is eligible to generate LCFS credits using the new
provisional CI score. LCFS credits are generated on a quarterly basis for the
previous quarter of production. Credits are then available to be sold. Quarterly
and annual reports are required to maintain LCFS registration and certified CI
for each facility.

Business Combinations and Related Transactions


On April 7, 2021, RAC entered into the Business Combination Agreements. On the
Closing Date, RAC completed the Business Combinations to acquire Legacy Archaea
and Aria. Following the Business Combinations closing, RAC changed its name from
"Rice Acquisition Corp." to "Archaea Energy Inc.," also referred to herein as
the "Company." Rice Acquisitions Holdings LLC was renamed "LFG Acquisition
Holdings LLC," also referred to herein as "Opco." In connection with the
Business Combinations closing, the Company completed a private placement of
29,166,667 shares of Class A Common Stock and 250,000 warrants (each warrant
exercisable for one share of Class A Common Stock at a price of $11.50) for
gross proceeds of $300 million.

The Company and Opco issued 33.4 million Class A Opco Units and 33.4 million
shares of Class B Common Stock on the Closing Date to Legacy Archaea Holders to
acquire Legacy Archaea. Aria was acquired for total initial consideration of
$863.1 million, subject to certain future adjustments set forth in the Aria
Merger Agreement. The Aria Closing Merger Consideration consisted of cash
consideration of $377.1 million paid to Aria Holders and equity consideration in
the form
                                       39

————————————————– ——————————

Contents


of 23.0 million newly issued Class A Opco Units and 23.0 million newly issued
shares of the Company's Class B Common Stock, par value $0.0001 per share, and
$91.1 million for repayment of Aria debt.

Archaea has retained its "up-C" structure, whereby all of the equity interests
in Aria and Legacy Archaea are indirectly held by Opco and the Company's only
assets are its equity interests in Opco.

The up-C structure allows the Legacy Archaea Holders, the Aria Holders, and the
Sponsor to retain their equity ownership through Opco, an entity that is
classified as a partnership for U.S. federal income tax purposes, in the form of
Class A Opco Units, and provides potential future tax benefits for Archaea when
those holders of Class A Opco Units ultimately exchange their Class A Opco Units
and shares of the Company's Class B Common Stock for shares of Class A Common
Stock in the Company. Opco is considered a VIE for accounting purposes, and the
Company, as the sole managing member of Opco, is considered the primary
beneficiary. As such, the Company consolidates Opco, and the unitholders that
hold economic interests directly at Opco are presented as redeemable
noncontrolling interests in the Company's financial statements.

Holders of Class A Opco Units (other than Archaea) have a redemption right,
subject to certain limitations, to redeem Class A Opco Units (and a
corresponding number of shares of Class B Common Stock) for, at Opco's option,
(i) shares of Class A Common Stock on a one-for-one basis, subject to adjustment
for stock splits, stock dividends, reorganizations, recapitalizations and the
like, or (ii) a corresponding amount of cash.

Reports on predecessors and successors


Legacy Archaea is considered the accounting acquirer of the Business
Combinations for accounting purposes because Legacy Archaea Holders have the
largest portion of the voting power of the combined company, Legacy Archaea's
executive management comprise the majority of the executive management of the
combined company, and the Legacy Archaea Holders appointed the majority of board
members exclusive of the independent board members. The Archaea Merger
represents a reverse merger and is accounted for as a reverse recapitalization
in accordance with GAAP. Under this method of accounting, RAC is treated as the
"acquired" company for financial reporting purposes. Accordingly, for accounting
purposes, the Archaea Merger is treated as the equivalent of Legacy Archaea
issuing shares for the net assets of RAC, accompanied by a recapitalization. The
net assets of RAC are stated at historical cost. No goodwill or other intangible
assets are recorded. Legacy Archaea is also considered the "Successor". As such,
the consolidated assets, liabilities and results of operations prior to the
September 15, 2021 reverse recapitalization are those of Legacy Archaea, the
accounting acquirer. The consolidated financial statements include the assets,
liabilities and results of operations of the Company and its consolidated
subsidiaries beginning on September 15, 2021, which includes approximately 3.5
months of the combined results of the businesses of Legacy Archaea and Aria as
operated by the Company after the Closing Date through December 31, 2021.

The Aria Merger represents a business combination in which Aria was determined
to be the acquiree, and Aria's identifiable assets acquired and liabilities
assumed are measured at their acquisition date fair value. Additionally, due to
Aria's historical operations compared to Legacy Archaea and the relative fair
values, Aria was determined to be the "Predecessor". As Predecessor, Aria's
historical financial statements have been included to enhance comparability for
readers, and we have also included a discussion of the Aria's operations,
financial condition and changes in financial condition for the period January 1
to September 14, 2021 and the year ended December 31, 2020.

Factors affecting the comparability of our financial results

Our future operating results will not be comparable to the historical operating results of our successor or predecessor for the reasons described below:


•The Company's future results of operations and financial position may not be
comparable to Legacy Archaea's or Aria's historical results as a result of the
Business Combinations and the Company's ongoing development activities. Our
results prior to the closing of the Business Combinations on September 15, 2021
only include Legacy Archaea, the accounting acquirer, whereas our results
beginning on September 15, 2021 include the combined operations of Legacy
Archaea and Aria as managed by the Company. In addition, both Legacy Archaea and
Aria have experienced significant growth and expansion over the last two years,
and the Company expects to continue to grow significantly through organic growth
projects and acquisitions.
                                       40

————————————————– ——————————

Contents


•Legacy Archaea was formed in November of 2018 and did not have significant
assets, liabilities or operations until its acquisition of BioFuels San
Bernardino Biogas, LLC in September of 2019, to acquire the LFG rights
agreements with two landfills located in San Bernardino County, California.
Subsequent to this acquisition, Legacy Archaea purchased a 72.2% controlling
interest in GCES, an original equipment manufacturer of air, water, and soil
remediation pollution control systems, in February 2020, and after the Business
Combinations, the Company acquired an additional 27.8% controlling interest to
obtain 100% ownership of GCES. In November 2020, Legacy Archaea acquired all of
the outstanding membership interests in the Boyd County LFG to RNG facility in
Ashland, Kentucky. In April 2021, Legacy Archaea purchased 100% of the
outstanding membership interests in PEI Power LLC ("PEI"), a biogas fuel
combustion power generating facility in Archbald, PA.

•As a result of the Business Combinations, the Company has hired and will need
to hire additional personnel and implement procedures and processes to address
public company regulatory requirements and customary practices. The Company
expects to incur additional annual expenses as a public company that Legacy
Archaea did not historically incur for, among other things, directors' and
officers' liability insurance, director fees and additional internal and
external accounting and legal and administrative resources, including increased
audit and legal fees.

•There are differences in the way the Company will finance its operations as
compared to the way our Successor or Predecessor financed its operations, which
were primarily through equity and project debt financing. The Company received
approximately $175 million in net proceeds from the Business Combinations, the
PIPE Financing, and debt issuance after payment of the Aria Merger cash
consideration and transaction expenses to fund the Company's future growth
projects. Upon consummation of the Business Combination, Archaea Borrower
entered into a $470 million Revolving Credit and Term Loan Agreement (the "New
Credit Agreement") which provides for a senior secured revolving credit facility
(the "Revolver") with an initial commitment of $250 million and a senior secured
term loan credit facility (the "Term Loan" and, together with the Revolver, the
"Facilities") with an initial commitment of $220.0 million. As of December 31,
2021, we had approximately $352.0 million of outstanding indebtedness, including
$218.6 million of outstanding borrowings under the Term Loan and $133.4 million
outstanding on our Assai Notes, and also had $235.8 million of available
borrowing capacity and outstanding letters of credit of $14.2 million as of
December 31, 2021 under the Revolver. The Company expects to fund our 2022
capital program through its project development activities with cash on hand
from the proceeds of the Business Combinations and available funding under our
credit facility as discussed below under "New Credit Facility." Further, the
Company may also determine to issue long-term debt securities to fund a portion
of its capital program if market conditions allow. The Company cannot predict
with certainty the timing, amount and terms of any future issuances of any such
debt securities or whether they occur at all. The amount and timing of the
future funding requirements will depend on many factors, including the pace and
results of our acquisitions and project development efforts.

•As a corporation, the Company is subject to U.S. federal income and applicable
state taxes to the extent it generates positive taxable income. Legacy Archaea
and Aria and their subsidiaries (with the exception of one partially-owned
subsidiary which filed income tax returns as a C corporation) are and were
generally not subject to U.S. federal income tax at an entity level.
Accordingly, the consolidated and combined net income in Legacy Archaea and
Aria's historical financial statements for periods prior to the consummation of
the Business Combinations does not reflect the full tax expense the Company
would have incurred if it were subject to U.S. federal income tax at an entity
level during such periods.

Other significant acquisitions

Boyd County Project


On November 10, 2020, Legacy Archaea acquired all the outstanding membership
interests of a high-Btu facility in Ashland, Kentucky that had not previously
been properly commissioned to process LFG to pipeline specification RNG. In
April 2021, the facility commenced commercial operations.

Assai and P.E.I.


On January 6, 2020, Legacy Archaea began the development of its Assai biogas
project on the site of the Keystone Sanitary Landfill in Dunmore, Pennsylvania,
in the Scranton metro area. Assai commenced commercial operations on December
30, 2021, with production expected to scale up over several months. Assai is the
highest capacity operational RNG facility in the world.
                                       41

————————————————– ——————————

Contents


On April 7, 2021, Legacy Archaea completed the acquisition of PEI. PEI's assets
include LFG rights, a pipeline, and a biogas fuel combustion power generating
facility with a combined capacity of approximately 85 MW located in Archbald,
Pennsylvania. We intend to transport LFG from the associated landfill at PEI to
Assai in the future.

GCES

On January 14, 2020, Legacy Archaea purchased a controlling position of GCES.
Historically located in Conroe, Texas, GCES is an original equipment
manufacturer of air, water, and soil remediation pollution control systems. GCES
manufactures equipment that will be used in the Company's RNG projects in
addition to selling equipment to third parties. As of December 31, 2021, the
Company has obtained 100% ownership of GCES. In 2022, GCES will relocate its
production facility to a new location within the Houston metroplex.

LFG to electrical installations


On October 28, 2021, Archaea acquired all the outstanding membership interests
in Frontier Operation Services, LLC and JL-E Financial Holdings, LLC, which own
and operate four LFG to renewable electricity facilities located in Winterville,
Georgia; Rochelle, Illinois; Graham, Washington; and Smithfield, North Carolina.

Our production facilities and projects


Archaea has a broad base of operational production facilities and a robust
backlog of RNG development opportunities. As of December 31, 2021, we own,
through wholly-owned entities or joint ventures, a diversified portfolio of 29
LFG recovery and processing facilities across 18 states, including 11 operated
facilities that produce pipeline-quality RNG and 18 LFG to renewable electricity
production facilities, including one non-operated facility and one facility that
is not operational. Prior to the consummation of the Business Combinations, the
RNG projects were included in Legacy Archaea's or Aria's RNG operating segment,
and Power projects were included in Aria's Power operating segment, except for
the PEI project, which was included in Legacy Archaea's Power operating segment.
Over the next several years, we intend to convert certain current LFG to
renewable electricity production facilities to RNG production facilities and
upgrade certain existing RNG production facilities. These facilities have
existing gas development agreements in place in addition to site leases, zoning,
air permits, and much of the critical infrastructure that is needed to develop
RNG projects. We also plan to develop and construct our portfolio of greenfield
development opportunities, for which we also already have gas development
agreements in place. Our development backlog as of December 31, 2021 includes 35
cumulative upgrade, conversion, and greenfield projects, and we are planning to
secure additional RNG development opportunities through long-term agreements
with biogas site hosts. Additional production facility and project data is
provided in Item 1. Business of this Annual Report on Form 10-K.

Main factors affecting operating results


The Company's performance and future success depend on several factors that
present significant opportunities but also pose risks and challenges, including
those discussed below and in Item 1A. "Risk Factors" of this Annual Report on
Form 10-K.

The Company's business strategy includes growth primarily through the upgrade
and expansion of existing RNG production facilities, conversion of LFG to
renewable electricity production facilities to RNG production facilities,
development and construction of greenfield RNG development projects for which we
already have gas development agreements in place, and the procurement of LFG
rights to develop additional greenfield RNG projects. We are also evaluating
other potential sources of biogas and exploring the development of wells for
carbon sequestration, the use of on-site solar-generated electricity to meet
energy needs for RNG production, and the use of RNG as a feedstock for
low-carbon hydrogen.

Until commercial RNG operations commenced in the fiscal quarter ended June 30,
2021, Legacy Archaea's revenues were derived primarily from the sale of
customized pollution control systems to third-party customers. With the
acquisition of Aria and as our RNG and other projects continue to become
commercially operational, the Company expects that a majority of our revenues
will be generated from the sale of RNG and renewable electricity, primarily
under long-term off-take agreements, along with the Environmental Attributes
that are derived from these products. Following the Business Combinations, until
the Company can generate sufficient revenue from RNG, renewable electricity and
Environmental Attributes, the Company is expected to primarily finance its
project development activities with its existing cash and financing arrangements
currently in place. See "Liquidity and Capital Resources - New Credit Facility,"
for further
                                       42

————————————————– ——————————

Contents


discussion of our existing financing arrangements. The amount and timing of the
future funding requirements will depend on many factors, including the pace and
results of our acquisitions and project development efforts.

Market trends and exposure to market-based price fluctuations


Future revenues will depend to a substantial degree upon the demand for RNG,
renewable electricity and Environmental Attributes, all of which are affected by
a number of factors outside our control. To manage exposure to
market-based pricing fluctuations, the Company seeks to sell a majority of
expected RNG production volumes under long-term off-take agreements with fixed
pricing to counterparties with strong credit profiles. The credit profiles of
the buyers of RNG are subject to change and are outside our control. Future
expenses will depend to a substantial degree upon electricity prices and the
costs of raw materials and labor. These costs, too, are subject to a number of
factors outside our control.

Regulatory Landscape

We operate in an industry that is subject to and currently benefits from
environmental regulations. Government policies can increase the demand for our
products by providing market participants with incentives to purchase RNG,
renewable electricity and Environmental Attributes. These government policies
are continuously being modified, and adverse changes in such policies could have
the effect of reducing the demand for our products. For more information, see
our risk factor titled "Existing regulations and policies, and future changes to
these regulations and policies, may present technical, regulatory and economic
barriers to the generation, purchase and use of renewable energy, and may
adversely affect the market for credits associated with the production of
renewable energy." Government regulations applicable to our renewable energy
projects have generally become more stringent over time. Complying with any new
government regulations may result in significant additional expenses or related
development costs for us.

Seasonality

To some extent, we experience seasonality in our results of operations.
Short-term sales of RNG may be impacted by higher consumption of vehicle fuels
by some of our customers in the summer months, when buses and other fleet
vehicles use more fuel to power their air conditioning systems, which typically
translates to an increased volume of fuel delivered in the summer months. In
addition, natural gas commodity prices tend to be higher in the fall and winter
months, due to increased overall demand for natural gas for heating during these
periods.

Revenues generated from our renewable electricity projects in the northeast
U.S., all of which sell electricity at market prices, are affected by warmer and
colder weather, and therefore a portion of our quarterly operating results and
cash flows are affected by pricing changes due to regional temperatures. These
seasonal variances are managed in part by certain off-take agreements at fixed
prices.

Cold weather can cause our plants to experience freeze-offs and power outages,
resulting in more downtime than under warm weather conditions. Shipping delays
for replacement parts and construction materials may also be more frequent
during the winter months leading to incremental downtime or construction delays.
In addition, lower ambient temperatures result in lower biogas production from
our anaerobic digesters and may result in changes to landfill gas composition
during the winter months which have the potential to cause incremental downtime.
Our energy production can also be affected during the summer months, as very
warm temperatures can dry out a landfill if the landfill owner is unable to keep
the landfill covered, which in turn reduces the LFG generated at the site.

Impacts of COVID-19


To date, the COVID-19 pandemic and preventative measures taken to contain or
mitigate the pandemic have caused, and are continuing to cause, business
slowdowns or shutdowns in affected areas and significant disruptions in the
financial markets both globally and in the United States. In response to
the COVID-19 pandemic and related mitigation measures, the Company began
implementing changes in its business in March 2020 to protect its employees and
customers, and to support appropriate health and safety protocols. These
measures resulted in additional costs, which we expect will continue through
2022 as we continue to work to address employee safety. As of the date of this
Annual Report, such business changes and additional costs have not been,
individually or in the aggregate, material to us. We are considered an essential
company under the U.S. Federal Cybersecurity and Infrastructure Security Agency
guidance and the various state or local jurisdictions in which we operate.
                                       43

————————————————– ——————————

Contents


Several vaccines have been authorized for use against COVID-19 in the United
States and internationally. As a result of distribution of the vaccines, various
federal, state and local governments have begun to ease the movement
restrictions and public health initiatives while continuing to adhere to
enhanced safety measures, such as physical distancing and face mask protocols.
However, uncertainty continues to exist regarding the severity and duration of
the pandemic, the speed and effectiveness of vaccine and treatment developments
and deployment, potential mutations of COVID-19, and the effect of actions taken
and that will be taken to contain COVID-19 or treat its effect, among others. As
a result, we remain uncertain of the ultimate effect COVID-19 could have on our
business and operations.

Results of Operations

Basis of Presentation

Our revenues are primarily generated from the production and sale of RNG and
renewable electricity along with the Environmental Attributes. RNG and renewable
electricity generate valuable Environmental Attributes that can be monetized
under international, federal, and state initiatives. The Environmental
Attributes that we derive and sell include RINs and state low-carbon fuel
credits, which are generated from the conversion of biogas to RNG which is used
as a transportation fuel, as well as from RECs generated from the conversion of
biogas to renewable electricity. Our RINs, RECs, and LCFS are sold with the sale
of RNG and renewable electricity or sold separately. In addition to revenues
generated from our product sales, we also generate revenues by providing O&M
services to certain of our JV production facilities and biogas site partners and
by constructing and selling equipment through our GCES subsidiary.

The Company reports segment information in two segments: RNG and Power. Prior to
the Business Combinations, the Company managed RNG as its primary business
operations, which is to construct and develop biogas facilities on landfill
sites for production of RNG. Our Power segment generates revenue by selling
renewable electricity and associated Environmental Attributes. In addition, we
hold interests in other entities that are accounted for using the equity method
of accounting, including Mavrix, which owns and operates four separate RNG
facilities included in the RNG segment, and the Sunshine electric project
included in the Power segment. We expect our future growth to be driven
primarily by additional projects within the RNG segment, and we expect to
convert the majority of our LFG to renewable electricity projects to RNG
projects over time.

Key indicators


Management regularly reviews a number of operating metrics and financial
measurements to evaluate our performance, measure our growth and make strategic
decisions. In addition to traditional GAAP performance and liquidity measures,
such as revenue, cost of sales, net income and cash provided by operating
activities, we also consider MMBtu and MWh sold and Adjusted EBITDA in
evaluating our operating performance. Each of these metrics is discussed below.

Key elements of operating results


As a result of the Business Combinations, prior year amounts are not comparable
to current year amounts or expected future trends. The historical financial
statements included herein are the financial statements of Legacy Archaea for
the year ended December 31, 2020.

Income


The Company generates revenues from the production and sales of RNG, Power, and
Environmental Attributes, as well as the performance of other landfill energy
O&M services and the sale of customized pollution control equipment and
associated maintenance agreement services. Whenever possible, we seek to
mitigate our exposure to commodity and Environmental Attribute pricing
volatility. We seek to sell a significant portion of our RNG production volumes
under long-term, fixed-price arrangements with creditworthy partners. We also
sell a portion of our volumes under short-term agreements, and many of these
volumes generate Environmental Attributes that we also monetize.

Until commercial RNG operations for Legacy Archaea commenced in the fiscal
quarter ended June 30, 2021, revenues were historically comprised of sales of
customized pollution control equipment and maintenance agreement services.
Revenues in Legacy Archaea's RNG segment commenced in the second quarter of 2021
with commercial operations at our Boyd County facility, and increased beginning
in September 2021 due to the Business Combinations and the inclusion of Aria for
approximately 3.5 months in the Company's results for the year ended
December 31, 2021. Revenues in our
                                       44

————————————————– ——————————

Contents


Power segment commenced with the PEI acquisition in the second quarter of 2021,
and increased beginning in September 2021 due to the Business Combinations and
the inclusion of Aria effective September 15, 2021 in the Company's results.

Cost of sales


Cost of sales is comprised primarily of royalty payments to landfill owners as
stipulated in our gas rights agreements and labor, parts and outside services
required to operate and maintain equipment utilized in generating energy from
our owned project facilities and from our landfill sources. Other costs directly
related to the production of electricity and RNG are transportation costs
associated with moving gas into pipelines, transmission costs of moving power
between the ISOs, and electricity consumed in the process of gas production. Our
payments to biogas site hosts are primarily in the form of royalties based on
realized revenues or, in some select cases, based on production volumes.

Prior to the Business Combinations, cost of sales was historically comprised
primarily of personnel compensation and benefits, insurance and raw materials,
and parts and components for manufacturing equipment for sale.

Environmental Attributes are a form of government incentive and not a result of
the physical attributes of the biogas or electricity production. Therefore, no
cost is allocated to the Environmental Attribute when it is generated,
regardless of whether it is transferred with the biogas or electricity produced
or held by the Company. Additionally, Environmental Attributes, once obtained
through the production and sale of biogas or electricity, may be separated and
sold separately.

Cost of sales also includes depreciation, amortization, and accretion expense on
our power and gas processing plants, amortization of intangible assets relating
to our gas and power rights agreements, and the accretion of our asset
retirement obligations. Depreciation and amortization is recognized using the
straight-line method over the underlying assets' useful life. Accretion expense
is recognized based on the effective yield method.

General and administrative expenses


General and administrative expenses consist primarily of personnel related costs
(including salaries, bonuses, benefits, and share-based compensation) for our
executive, finance, human resource, marketing, IT and other administrative
departments and fees for third-party professional services, including
consulting, legal and accounting services. These expenses also include
insurance, software, and other corporate related costs. No depreciation or
amortization expenses are allocated to general and administrative expenses.

We expect our general and administrative expenses to increase for the
foreseeable future as we scale headcount with the growth of our business, and as
a result of operating as a public company, including compliance with the rules
and regulations of the SEC, legal, audit, additional insurance expenses,
investor relations activities and other administrative and professional
services.

Equity profit


We hold interests in other entities that are accounted for using the equity
method of accounting, including Mavrix, which owns and operates four separate
RNG facilities, the Sunshine electric project, and Saturn Renewables, LLC, which
owns gas rights at two landfills.

Comparison of successors for the year ended December 31, 2021 and 2020


The following discussion pertains to our results of operations, financial
condition, and changes in financial condition of the Successor, which includes
only Legacy Archaea for dates prior to September 15, 2021 and the operations of
both Legacy Archaea and Aria from September 15, 2021 through December 31, 2021.
Any increases or decreases "for the year ended December 31, 2021" refer to the
comparison of the year ended December 31, 2021, to the year ended December 31,
2020.

As of 2020, Legacy Archaea had no operating assets and as such the RNG and Power segments did not exist. As such, any segment comparison would not be informative and has not been included for comparison purposes.

                                       45

————————————————– ——————————

Contents


Set forth below is a summary of volumes sold for the years ended December 31,
2021 and 2020:

                                         2021         2020
RNG sold (MMBtu)                      1,482,124         -
Electricity sold (MWh)                  309,083         -


Volumes increased in 2021 compared to 2020 due to the commencement of commercial
operations in April 2021 at our Boyd County facility, the purchase of the PEI
power assets in April 2021, and the acquisition of Aria. The volumes sold table
above excludes volumes sold by the Company's equity method investments.

Below is a summary of selected financial information for the years ended December 31, 2021 and 2020:

(in thousands)                                             2021           2020        $ Change
Revenues and other income                               $  77,126      $  6,523      $  70,603
Costs of sales                                             62,513         4,889         57,624

Equity investment income (loss)                             5,653             -          5,653
General and administrative expenses                        43,827         4,371         39,456
Operating income (loss)                                   (23,561)       (2,737)       (20,824)
Other income (expense), net                                (7,360)          501         (7,861)
Net income (loss)                                       $ (30,921)     $ (2,236)     $ (28,685)


Revenues and Other Income

Revenues and other income were approximately $77.1 million for the year ended
December 31, 2021, an increase of $70.6 million. The increased revenues are
primarily attributable to the commencement of commercial operations in April
2021 at our Boyd County facility, the purchase of the PEI power assets, and the
acquisition of Aria resulting in a $57.7 million increase, partially offset by a
reduction of pollution control equipment sales.

Cost of sales


Costs of sales increased by $57.6 million for the year ended December 31, 2021
primarily due to the commencement of commercial operations in April 2021 at our
Boyd County facility, the purchase of the PEI power assets, and the acquisition
of Aria resulting in a $38.5 million increase.

Equity investment income (loss)

Income from equity investments increased due to the acquisition of Aria, which resulted in the interest in Mavrix and canyon of the sun joint ventures.

General and administrative expenses

General and administrative expenses increased by $39.5 million for the year ended December 31, 2021 primarily due to merger-related expenses related to additional legal fees, contractors and consultants, additional general and administrative staff as our business has grown and become a public company, and expenses stock-based compensation.

Other income (expenses)


Other expense increased by $7.9 million primarily due to the increase in
interest expense of $4.8 million and the increase in fair value of the warrant
liabilities from the date of the Business Combinations through either the date
of exercise, if applicable, or December 31, 2021 for the remaining Private
Placement Warrants resulting in a loss of $3.0 million.

Adjusted EBITDA


Adjusted EBITDA is calculated by taking net income (loss) before taxes, interest
expense, and depreciation, amortization and accretion, and adjusting for the
effects of certain non-cash items, other non-operating income or expense items,
and other items not otherwise predictive or indicative of ongoing operating
performance, including net derivatives activity,
                                       46

————————————————– ——————————

Contents


non-cash share-based compensation expense, and non-recurring costs related to
our Business Combinations. We believe the exclusion of these items enables
investors and other users of our financial information to assess our sequential
and year-over-year performance and operating trends on a more comparable basis
and is consistent with management's own evaluation of performance.

Adjusted EBITDA also includes adjustments for equity method investment basis
difference amortization and the depreciation and amortization expense included
in our equity earnings from our equity method investments. These adjustments
should not be understood to imply that we have control over the related
operations and resulting revenues and expenses of our equity method investments.
We do not control our equity method investments; therefore, we do not control
the earnings or cash flows of such equity method investments. The use of
Adjusted EBITDA, including adjustments related to equity method investments, as
an analytical tool should be limited accordingly.

Adjusted EBITDA is commonly used as a supplemental financial measure by our
management and external users of our consolidated financial statements to assess
the financial performance of our assets without regard to financing methods,
capital structures, or historical cost basis. Adjusted EBITDA is not intended to
represent cash flows from operations or net income (loss) as defined by GAAP and
is not necessarily comparable to similarly titled measures reported by other
companies.

We believe that Adjusted EBITDA provides relevant and useful information to management, investors and other users of our financial information to assess the effectiveness of our operating performance in a manner consistent with management’s assessment of performance financial and operational.


The table below sets forth the reconciliation of Net income (loss) to Adjusted
EBITDA:

(in thousands)                                                                  2021                  2020
Net income (loss)                                                          $    (30,921)         $     (2,236)
Adjustments:
Interest expense                                                                  4,797                    20
Depreciation, amortization and accretion                                         16,025                   137
EBITDA                                                                            (10,099)               (2,079)
Net derivative activity                                                           3,727                     -
Amortization of intangibles and below-market contracts                           (1,479)                    -
Amortization of equity method investments basis difference                        3,068                     -

Depreciation and amortization adjustments for equity accounted investments

                                                                       1,745                     -
Share-based compensation                                                          5,071                     -
Acquisition transaction costs                                                     3,045                     -
Actuarial (gain) loss on postretirement plan                                         (917)                     -
Adjusted EBITDA                                                            $         4,161       $       (2,079)


Predecessor Discussion

Key elements of operating results

Energy revenues


A significant majority of Aria's owned projects operate under long-term off-take
agreements with investment grade and other creditworthy counterparties that have
a weighted average remaining life of approximately 5 years for Power projects
and approximately 10 years for RNG projects as of September 14, 2021. Power that
is not covered by long-term off-take agreements is sold either under short-term
bilateral agreements or in the wholesale markets. For electricity, these are
markets organized and maintained by ISOs and RTOs (e.g., NYISO in New York,
ISO-NE in New England and PJM Interconnection, L.L.C. ("PJM") in the eastern
United States). These ISOs and RTOs are well established organizations,
regulated by states and FERC. For power sold in the wholesale markets, Aria
schedules the output in the day-ahead markets and receives the market price
determined by the ISO or RTO through balancing the supply and demand for each
day. In most cases, Aria implements an optimization of the output sold in
wholesale markets by using transmission to move the power into the ISO which
offers better prices for RECs.
                                       47

————————————————– ——————————

Contents

For RNG, Aria has entered into long-term off-take agreements with creditworthy counterparties. Some contracts involve fixed price purchase agreements, while others sell natural gas and environmental attributes and are subject to market price fluctuations.


Aria also generates revenue through the sale of Environmental Attributes. These
Environmental Attributes include RECs, RINs and LCFS credits created from the
sale of electricity and RNG as a transportation fuel. In most cases, RECs are
sold to competitive energy suppliers or utilities. RINs are generally sold to
energy companies, and Aria includes revenues from the sale of these
Environmental Attributes in Energy revenue. REC revenue is recognized at the
time power is produced where an active market exists and a sales agreement is in
place for the credits. RIN revenue is recognized when the fuel is produced or
transferred to a third party when a sales agreement is in place.

Construction revenue


Construction revenue is derived from the installation of RNG plants owned by the
nonconsolidated joint ventures. Aria recognizes revenue over time based on costs
incurred and a fixed profit mark-up per construction agreement. Any intercompany
profit is eliminated.

Cost of Energy

Cost of energy is comprised primarily of labor, parts and outside services
required to operate and maintain equipment utilized in generating energy from
project facilities and landfill sources. Other costs directly related to the
production of electricity and RNG are transportation costs associated with
moving gas into pipelines, transmission costs of moving power between the ISOs,
electricity consumed in the process of gas production, and royalty payments to
landfill owners as stipulated in gas rights agreements.

Building cost

Construction cost primarily includes labour, equipment and other costs associated with revenue from construction contracts incurred to date.

General and administrative expenses

General and administrative expenses include office rentals and costs related to labor, legal services, accounting, treasury, information technology, insurance, communications, human resources , procurement, utilities, property taxes, permits and other overhead.

Gain (loss) on derivative contracts


Aria used interest rate swaps and caps to manage the risk associated with
interest rate cash flows on variable rate borrowings. Changes in the fair values
of interest rate swaps and realized losses were recognized as a component of
interest expense. The interest rate swaps were measured at fair value by
discounting the net future cash flows using the forward London Inter-Bank
Offered Rate ("LIBOR") curve with the valuations adjusted by the counterparties'
credit default hedge rate.

Changes in the fair values of natural gas swap are recognized in gain (loss) on
derivative contracts and realized losses are recognized as a component of cost
of energy expense. Valuation of the natural gas swap was calculated by
discounting future net cash flows that were based on a forward price curve for
natural gas over the life of the contract, with an adjustment for the
counterparty's credit default hedge rate.

Comparison of predecessors from the period of January 1 to September 14, 2021 and the year ended December 31, 2021


The following discussion pertains to the Predecessor results of operations,
financial condition, and changes in financial condition. Any increases or
decreases "for the period from January 1 to September 14, 2021" refer to the
comparison of the period from January 1 to September 14, 2021, to the year ended
December 31, 2020.
                                       48

————————————————– ——————————

Contents



Set forth below is a summary of Aria's volumes sold for the period from January
1 to September 14, 2021 and the year ended December 31, 2020 (excluding volumes
sold by Aria's equity method investments):

                                                                    January 1 to September 14,
                                                                               2021                   Year Ended December 31, 2020
RNG sold (MMBtu)                                                                2,983,816                             4,325,757
Electricity sold (MWh)                                                            469,299                               863,959


RNG volumes decreased for the period from January 1 to September 14, 2021
compared to the year ended December 31, 2020 primarily due to the shorter
operating period and scheduled maintenance at the KC LFG and SWACO facilities.
Power volumes decreased for the period from January 1 to September 14, 2021
compared to the year ended December 31, 2020 primarily due the shorter operating
period and the sale of LES Project Holdings LLC ("LESPH") in June 2021.

Set forth below is a summary of Aria's certain financial information for the
period from January 1 to September 14, 2021 and the year ended December 31,
2020:

                                                                          January 1 to
                                                                          September 14,            Year Ended
(in thousands)                                                                2021              December 31, 2020          $ Change
Revenues and other income                                               $   

117,589 $138,881 $(21,292)
Selling fees

                                                                  72,269                 112,590              (40,321)
Equity investment income (loss)                                                 19,777                   9,298               10,479
General and administrative expenses                                             33,737                  20,782               12,955
Operating income (loss)                                                         32,707                 (10,486)              43,193
Other income (expense), net                                                     51,813                 (19,437)              71,250
Net income (loss)                                                       $       84,520          $      (29,923)         $   114,443


Revenues and Other Income

Revenue and other income decreased by $21.3 million for the period from January
1 to September 14, 2021 as result of the shorter operating period, lower LESPH
revenue as a result of its sale in June 2021 and lower construction revenue,
partially offset by higher RIN, natural gas, and power commodity pricing.

Cost of sales

Cost of sales decreased $40.3 million for the period of January 1 to September 14, 2021 due to the shorter operating period and the sale of LESPH, partially offset by higher royalties.

Equity investment income (loss), net


Equity investment income increased by $10.5 million for the period from January
1 to September 14, 2021 as a result of Mavrix income being higher, RIN and gas
pricing, and the addition of the South Shelby RNG facility, partially offset by
the effect of the shorter operating period.

General and administrative expenses

General and administrative expenses increased by $13.0 million for the period of January 1 to September 14, 2021 due to merger-related legal, advisory and personnel costs.

Other income (expenses), net

Other income (expenses), net increased by $71.3 million for the period of
January 1 to September 14, 2021 due to the gain on extinguishment of debt related to the disposal of LESPH.

                                       49

————————————————– ——————————

Contents

Cash and Capital Resources (successor)

Sources and uses of funds


Legacy Archaea historically funded its operations and growth with equity and
debt financing. The Company's primary uses of cash have been to fund
construction of RNG facilities and acquisitions of complementary businesses and
LFG rights. The Company is expected to primarily finance its project development
activities with cash on hand from the proceeds of the Business Combinations,
available funding under our credit facility as discussed below under "New Credit
Facility," and, if we accelerate our growth plans, additional debt or share
issuances. Further, the Company may also determine to issue long-term debt
securities to fund a portion of its capital program if market conditions allow.
The Company cannot predict with certainty the timing, amount and terms of any
future issuances of any such debt securities or whether they occur at all. The
amount and timing of the future funding requirements will depend on many
factors, including the pace and results of our acquisitions and project
development efforts. Under the Company's base 2022 capital expenditure budget,
we expect to allocate $130 million to fund optimization projects and new build
projects that are expected to be completed in 2022. As of December 31, 2021, we
had the cash balance described in the paragraph below and approximately $352.0
million of outstanding indebtedness, including $218.6 million of outstanding
borrowings under the Term Loan and $133.4 million outstanding on our Assai
Notes, and also had $235.8 million of available borrowing capacity under the
Revolver. We expect that existing cash and cash equivalents, positive cash flows
from operations and available borrowings under our credit facility will be
sufficient to support our working capital, capital expenditures and other cash
requirements for at least the next twelve months. Accelerating our growth plans
may require additional cash requirements, which would likely be funded with debt
or share issuances. We may, to the extent market conditions are favorable, incur
additional debt to, among other things, finance future acquisitions of
businesses, assets, or biogas rights, fund development of projects in our
backlog, respond to competition, or for general financial reasons alone.

Cash


As of December 31, 2021, Archaea had $77.9 million of unrestricted cash and cash
equivalents included in $91.7 million of total working capital, which together
are expected to provide ample liquidity to fund our current operations and a
portion of our near-term development projects. As of December 31, 2021, we also
had $15.2 million of restricted cash for payment primarily of
construction-related costs for the Assai RNG facility.

In November 2021, we have issued a redemption notice to the holders of our redeemable warrants. During the repayment period ending in December 2021we received a total product of $107.7 million of the exercise of the redeemable warrants.


To minimize dilution to our existing stockholders as a result of warrant
exercises, we used cash proceeds received from exercises of Redeemable Warrants
to repurchase 6,101,449 shares of Class A Common Stock from Aria Renewable
Energy Systems LLC at a pre-negotiated price of $17.65 per share for a total
cost of $107.7 million.

For more information regarding our warrants and the redemption notice, see "Note
13 - Derivatives Instruments" to our Consolidated Financial Statements included
herein.

New Credit Facilities

On the Closing Date and upon consummation of the Business Combinations, Archaea
Borrower, entered into a $470 million New Credit Agreement with a syndicate of
lenders co-arranged by Comerica Bank. The New Credit Agreement provides for the
Revolver with an initial commitment of $250 million and a Term Loan with an
initial commitment of $220 million. Pursuant to the New Credit Agreement,
Archaea Borrower has the ability, subject to certain conditions, to draw upon
the Revolver on a revolving basis up to the amount of the Revolver then in
effect. On the Closing Date, the Company received total proceeds of $220 million
under the Term Loan. As of December 31, 2021, the Company has outstanding
borrowings under the Term Loan of $218.6 million at an effective interest rate
of 3.35% and has not drawn on the Revolver. As of December 31, 2021, the Company
had issued letters of credit under the New Credit Agreement of $14.2 million,
and thus reducing the borrowing capacity of the Revolver to $235.8 million.
Under the Company's base 2022 capital expenditure budget, we expect to utilize a
portion of available capacity under the Revolver to fund our near-term
development projects.

Prior to the Archaea Merger, Legacy Archaea had certain other secured promissory
notes and credit facilities in place which were extinguished at the closing of
the Business Combinations.
                                       50

————————————————– ——————————

Contents

Summarized cash flows for the years ended December 31, 2021 and 2020:


(in thousands)                                                     2021     

2020

Cash used in operating activities                              $  (28,112)     $  (5,834)
Cash used in investing activities                              $ (694,551)     $ (42,319)
Cash provided by financing activities                          $  814,233      $  49,226
Net increase in cash, cash equivalents and restricted cash     $   91,570   

$1,073

Cash flows used in operating activities

The Company generates cash from its revenues and uses cash in its operating activities and for general and administrative expenses.


Total cash used in operating activities increased by $22.3 million for the year
ended December 31, 2021, which was primarily related to higher general and
administrative expenses due to increases in employee costs as we continue to
build our business, and operating costs associated with the additions of Boyd
County and PEI. Changes in other working capital accounts were approximately
$24.7 million and related to the timing of revenue receipts, payable payments
and combined company insurance programs.

Cash used in investing activities


We continue to have significant cash outflows for investing activities as we
expand our business and develop projects.
Total cash used in investing activities was $694.6 million for the year ended
December 31, 2021. In addition to the Aria Merger, we spent $147.3 million on
development activities and $61.8 million, net of cash acquired, primarily
related to the acquisition of a pipeline that will transport gas to our Assai
facility and the acquisition of four operating LFG to renewable electricity
facilities. Development activities in 2021 are related to construction at our
various plants, including Assai and the Boyd County facility, as well as biogas
rights acquisitions of $7.8 million. We also made contributions to equity method
investments totaling $22.2 million. For the year ended December 31, 2021, cash
used in investing activities by Aria and Legacy Archaea, together, was $242.0
million, including purchases of property, plant and equipment totaling $141.8
million, primarily related to the development of our Assai and Boyd County RNG
facilities, purchases of equipment for future development projects and certain
asset acquisitions. Also during the year ended December 31, 2021, Aria and
Legacy Archaea acquired certain assets for $61.8 million, acquired biogas rights
for $7.8 million, and contributed $30.6 million into equity method investments.
During the quarter ended December 31, 2021, purchases of property, plant and
equipment totaled $51.3 million, which were primarily related to the development
of our Assai facility and equipment purchased for future development projects.

Cash used in investing activities of $42.3 million for the year ended December
31, 2020 was primarily attributable to acquiring a majority position in GCES,
acquiring biogas rights, and construction at the Assai production facility.

Cash provided by financing activities


The results of cash provided by financing activities is primarily attributable
to cash proceeds from the Business Combinations, including the PIPE Financing
and proceeds from the RAC trust account, borrowings from long-term debt under
the 3.75% Notes, the 4.47% Notes, and the New Credit Agreement, offset by
certain debt repayments. This resulted in net cash proceeds of $815.9 million.
In addition, total proceeds of $107.7 million from the exercise of Redeemable
Warrants were used to repurchase 6,101,449 shares of Class A Common Stock from
Aria Renewable Energy Systems LLC.

Cash provided by financing activities of $49.2 million for the year ended
December 31, 2020 consisted primarily of equity financing.

Operating leases


The Company has entered into various operating leases for our corporate
headquarters, other office space, warehouse, and facilities with third parties
for periods ranging from one to eleven years. The Company also entered into a
related-party office lease as a result of its acquisition of interest GCES in
2020. During the year ended December 31, 2021, the Company paid $0.2 million
under this related-party lease which expires in May 2022.
                                       51

————————————————– ——————————

Contents

long-term debt

Assai Energy 3.75% and 4.47% Senior Secured Notes


On January 15, 2021, Assai Energy, LLC ("Assai Energy") entered into a senior
secured note purchase agreement with certain investors for the purchase of $72.5
million in principal amount of 3.75% Senior Secured Notes (the "3.75% Notes").
Interest on the 3.75% Notes is payable quarterly in arrears, and the 3.75% Notes
mature on September 30, 2031. On April 5, 2021, Assai Energy entered into an
additional senior secured note purchase agreement with certain investors for the
purchase of $60.8 million in principal amount of its 4.47% Senior Secured Notes
(the "4.47% Notes" and, together with the 3.75% Notes, collectively the "Assai
Notes"). Interest is payable quarterly in arrears, and the 4.47% Notes mature on
September 30, 2041. As of December 31, 2021, Assai Energy received total
proceeds of $133.4 million from the Assai Notes of which approximately
$30 million was used to complete the acquisition of PEI. The remaining proceeds
were used to fund the development of our Assai production facility.

Wilmington Trust, National Association is the collateral agent for the secured
parties for the Assai Notes. The Assai Notes are secured by all Assai plant
assets and plant revenues and a pledge of the equity interests of Assai Energy.
Cash received from the Assai Notes is restricted for use on Assai related costs
and cannot be used for general corporate purposes.

New credit facilities


On the Closing Date and upon consummation of the Business Combinations, Archaea
Borrower entered into a $470 million New Credit Agreement with a syndicate of
lenders co-arranged by Comerica Bank. The New Credit Agreement provides for the
Revolver with an initial commitment of $250 million and a Term Loan with an
initial commitment of $220 million. Pursuant to the New Credit Agreement,
Archaea Borrower has the ability, subject to certain conditions, to draw upon
the Revolver on a revolving basis up to the amount of the Revolver then in
effect. On the Closing Date, the Company received total proceeds of $220 million
under the Term Loan. As of December 31, 2021, the Company has outstanding
borrowings under the Term Loan of $218.6 million at an effective interest rate
of 3.35% and has not drawn on the Revolver. As of December 31, 2021, the Company
had issued letters of credit under the New Credit Agreement of $14.2 million,
and thus reducing the borrowing capacity of the Revolver to $235.8 million.

Debt activity for the year ended December 31, 2021 is as follows:


                                           December 31,                                                    December 31,
(in thousands)                                 2020               Borrowings            Repayments             2021
Comerica Bank - Specific Advance Facility
Note                                      $     4,319          $        675          $     (4,994)         $        -
Comerica Bank - Previous Revolver                   -                12,478               (12,478)                  -
Comerica Term Loan                             12,000                     -               (12,000)                  -
New Credit Agreement - Term Loan                    -               220,000                (1,375)            218,625
New Credit Agreement - Revolver                     -                     -                     -                   -
Wilmington Trust - 4.47% Term Note (1)              -                60,828                     -              60,828
Wilmington Trust - 3.75% Term Note (1)              -                72,542                     -              72,542
Promissory Notes                                    -                30,000               (30,000)                  -
Kubota Corporation - Term Notes                    46                     -                   (46)                  -
Total                                     $    16,365          $    396,523          $    (60,893)         $  351,995

_________________________________

(1) Loans were used mainly for the construction of the Assai plant.

See “Note 11 – Debt” in the notes to the consolidated financial statements for additional information on the Company’s debt instruments.

Material cash needs


The Company has various long-term contractual commitments pertaining to certain
of its biogas rights agreements that include annual minimum royalty and landfill
gas rights payments. Annual minimum royalty and landfill gas rights payments
generally begin when production commences and continue through the period of
operations. For 2022, the expected annual minimum royalty and landfill gas
rights payments are $5.4 million, and the annual commitment will
                                       52

————————————————– ——————————

Contents

increase as production begins from new facilities under development with biogas rights agreements that include minimum payment terms.

The Company has purchase commitments related to construction services and equipment purchases for the development and upgrade of $177.7 million from December 31, 2021with cash payments expected from $174.7 million
and $3.0 million in 2022 and 2023, respectively.

Significant Accounting Policies


This management's discussion and analysis of financial condition and results of
operations are based on our consolidated financial statements. Our financial
statements have been prepared in conformity with GAAP. For a discussion of our
significant accounting policies, see "Note 2 - Basis of Presentation and Summary
of Significant Accounting Policies."

Significant Accounting Policies and Estimates


The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amount of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. The
estimates and assumptions used in our financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. We evaluate our estimates on an ongoing basis. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. The results form the
basis for judgments we make about the carrying values of assets and liabilities
that are not readily apparent from other sources. Because these estimates can
vary depending on the situation, actual results may differ from the estimates
and assumptions used in preparing the financial statements.

We identify the most critical accounting policies as those that are the most
pervasive and important to the portrayal of our financial position and results
of operations and that require the most difficult, subjective and/or complex
judgments by management regarding estimates about matters that are inherently
uncertain. Our critical accounting policies are associated with acquisition
accounting and the judgment used in determining the fair value of identified
assets acquired and liabilities assumed.

Accounting for business combinations


The Company applies Accounting Standards Codification ("ASC") 805, Business
Combinations, when accounting for acquisitions of a business under GAAP.
Identifiable assets acquired, liabilities assumed and noncontrolling interest,
if applicable, are recorded at their estimated fair values at the acquisition
date. Significant judgment is required in determining the acquisition date fair
value of the assets acquired and liabilities assumed, predominantly with respect
to property, plant and equipment and intangible assets consisting of biogas
contracts, existing purchase and sales contracts, trade names and customer
relationships. Evaluations include numerous inputs, including forecasted cash
flows that incorporate the specific attributes of each asset including future
natural gas and electric prices, future Environmental Attribute pricing, cost
inflation factors, and discount rates. For property, plant, and equipment, we
consider the remaining useful life of equipment, current replacement costs for
similar assets, and comparable market transactions. The Company evaluates all
available information, as well as all appropriate methodologies, when
determining the fair value of assets acquired, liabilities assumed, and
noncontrolling interest, if applicable, in a business combination. In addition,
once the appropriate fair values are determined, the Company must determine the
remaining useful life for property, plant and equipment and the amortization
period and method of amortization for each finite-lived intangible asset. The
estimates of fair values of assets impact future depreciation and amortization
and the initial amount of goodwill recorded.

Recent accounting pronouncements


For a description of the Company's recently adopted accounting pronouncements
and recently issued accounting standards not yet adopted, see "Note 3 - Recently
Issued and Adopted Accounting Standards" of the consolidated financial
statements appearing in this Annual Report Form on 10-K.

Inflation

The Company does not believe that inflation had a material impact on our business, revenues or results of operations during the periods presented.

                                       53

————————————————– ——————————

Contents

© Edgar Online, source Previews

Share.

Comments are closed.