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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
______________________________
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number:
001-39644
_____________________________
Archaea Energy Inc.
(Exact name of Registrant as specified in its charter)
_____________________________
Delaware
85-2867266
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
4444 Westheimer Road, Suite G450
Houston, Texas 77027
(Address of principal executive offices and zip code)
(346) 708-8272
(Registrant's telephone number, including area code)
Rice Acquisition Corp.
102 East Main Street, Second Story
Carnegie, Pennsylvania 15106
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share
LFG
The New York Stock Exchange
Warrants, each exercisable for one share of Class A Common Stock at a price of $11.50 per share
LFG WS
The New York Stock Exchange
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No    
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No    
As of November 8, 2021, there were 53,590,976 shares of Class A common stock and 62,281,735 shares of Class B common stock issued and outstanding.


Table of Contents
TABLE OF CONTENTS
Page

Archaea Energy Inc.






Aria Energy LLC (Predecessor)

Consolidated Condensed Statements of Cash Flows – For the period from January 1, 2021 to September 14, 2021 and the nine months ended September 30, 2020

1

Table of Contents
Commonly Used Terms and Definitions
Unless the context otherwise requires, the terms “Archaea” and the “Company” refer to Archaea Energy Inc. and its consolidated subsidiaries. In addition, the following company or industry-specific terms and abbreviations are used throughout this report:
Archaea Merger Agreement: The Business Combination Agreement, dated April 7, 2021, as subsequently amended, pursuant to which, among other things, the Company acquired Legacy Archaea
Aria: Aria Energy LLC, a Delaware limited liability company, and its subsidiaries
Aria Holders: The members of Aria immediately prior to the Closing
Aria Merger: The transaction executed by the Archaea Merger Agreement
Aria Merger Agreement: The Business Combination Agreement, dated as of April 7, 2021, as subsequently amended, pursuant to which, among other things, the Company acquired Aria
Atlas: Atlas Point Energy Infrastructure Fund, LLC, a Delaware limited liability company
Btu: British thermal units
Business Combination Agreements: The Aria Merger Agreement and the Archaea Merger Agreement
Business Combinations: The transactions contemplated by the Business Combination Agreements
Class A Common Stock: Class A Common Stock, par value $0.0001 per share, of the Company
Class A Common Units: Class A Common Units of Opco
Class B Common Stock: Class B Common Stock, par value $0.0001 per share, of the Company
Class B Common Units: Class B Common Units of Opco
Closing: The closing of the Business Combinations
Closing Date: September 15, 2021, the closing date of the Business Combinations
Common Stock: Class A Common Stock and the Class B Common Stock
Environmental Attributes: Federal, state and local government incentives in the United States, provided in the form of RINs, RECs, LCFS credits, rebates, tax credits and other incentives to end users, distributors, system integrators and manufacturers of renewable energy projects, that promote the use of renewable energy.
FERC: The Federal Energy Regulatory Commission
Forward Purchase Warrants: The 250,000 warrants issued in a private placement that closed simultaneously with the consummation of the Business Combinations on September 15, 2021
GCES: Gulf Coast Environmental Services, LLC
Initial Public Offering: RAC’s initial public offering, which was consummated on October 26, 2020
ISO: Independent System Operator
Legacy Archaea: Archaea Energy LLC, a Delaware limited liability company, and its subsidiaries
Legacy Archaea Holders: The members of Legacy Archaea immediately prior to the Closing
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LCFS: Low Carbon Fuel Standard
LFG: Landfill gas
MMBtu: One million British thermal unit
MW: Megawatts
MWh: Megawatt hours
NYSE: The New York Stock Exchange
Opco: LFG Acquisition Holdings LLC, a Delaware limited liability company, which was formerly named Rice Acquisition Holdings LLC
PIPE Financing: The private placement of 29,166,667 shares of Class A Common Stock for gross proceeds to the Company of $300 million in connection with the Business Combinations
Private Placement Warrants: The 6,771,000 warrants originally issued to Sponsor and Atlas in a private placement that closed simultaneously with the consummation of the Initial Public Offering
Proxy Statement: The Company’s definitive proxy statement regarding the Business Combinations and related transactions filed with the SEC on August 12, 2021
Public Warrants: The 11,862,492 warrants originally sold as part of the units issued in the Initial Public Offering
RAC: Rice Acquisition Corp.
RAC Opco: Rice Acquisition Holdings LLC
RECs: Renewable Energy Credits
Redeemable Warrants: The Company's Public Warrants and Forward Purchase Warrants
RINs: Renewable Identification Numbers
RNG: Renewable natural gas
RTO: Regional transmission organization
SEC: U.S. Securities and Exchange Commission
Sponsor: Rice Acquisition Sponsor LLC, a Delaware limited liability company

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Cautionary Note Regarding Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q (this "Report"), including, without limitation, statements under the heading “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “should,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other similar words. Forward-looking statements may relate to expectations for future financial performance, business strategies or expectations for the Company’s business. Specifically, forward-looking statements may include statements concerning market conditions and trends, earnings, performance, strategies, prospects and other aspects of the business of the Company. Forward looking statements are based on current expectations, estimates, projections, targets, opinions and/or beliefs of the Company, and such statements involve known and unknown risks, uncertainties and other factors.
The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward looking statements include, but are not limited to: (a) the ability to recognize the anticipated benefits of the Business Combinations and any transactions contemplated thereby, which may be affected by, among other things, competition, the ability of the Company to grow and manage growth profitably and retain its management and key employees; (b) the possibility that the Company may be adversely affected by other economic, business and/or competitive factors; (c) the Company’s ability to develop and operate new projects; (d) the reduction or elimination of government economic incentives to the renewable energy market; (e) delays in acquisition, financing, construction and development of new projects; (f) the length of development cycles for new projects, including the design and construction processes for the Company’s projects; (g) the Company’s ability to identify suitable locations for new projects; (h) the Company’s dependence on landfill operators; (i) existing regulations and changes to regulations and policies that affect the Company’s operations; (j) decline in public acceptance and support of renewable energy development and projects; (k) demand for renewable energy not being sustained; (l) impacts of climate change, changing weather patterns and conditions, and natural disasters; (m) the ability to secure necessary governmental and regulatory approvals; (n) the Company’s expansion into new business lines and (o) other risks and uncertainties indicated in the Registration Statement on Form S-1 (File No. 333-260094), originally filed by the Company with the SEC on October 6, 2021, as subsequently amended on October 18, 2021 and declared effective by the SEC on October 21, 2021 (the “Registration Statement”), including those under “Risk Factors” therein, and other documents filed or to be filed with the SEC by the Company.
Accordingly, forward-looking statements should not be relied upon as representing the Company’s views as of any subsequent date. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ARCHAEA ENERGY INC.
Consolidated Condensed Balance Sheets
(Unaudited)
(in thousands, except shares and per share data)
September 30,
2021
December 31,
2020
ASSETS


Current Assets

Cash and cash equivalents
$153,644 $1,496 
Restricted cash
17,156  
Accounts receivable, net
30,244 1,780 
Inventory
9,285  
Prepaid expenses and other current assets29,311 4,730 
Total Current Assets
239,640 8,006 
Property, plant and equipment, net
281,610 52,368 
Intangible assets, net
592,123 8,693 
Goodwill
27,011 2,754 
Equity method investments237,265  
Other non-current assets9,596 2,460 
Total Assets
$1,387,245 $74,281 
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable - trade
$3,630 $14,845 
Current portion of long-term debt, net
8,546 1,302 
Accrued and other current liabilities
21,587 8,270 
Total Current Liabilities
33,763 24,417 
Long-term debt, net
329,254 14,773 
Derivative liabilities
160,630  
Below market contracts108,392  
Asset retirement obligations
3,904 306 
Other long-term liabilities
8,009 3,294 
Total Liabilities
643,952 42,790 
Commitments and Contingencies
Redeemable Noncontrolling Interests1,179,616  
Equity
Members' Equity— 34,930 
Members' Accumulated Deficit— (4,156)
Stockholders' Equity
Preferred stock, $0.0001 par value; 10,000,000 authorized; none issued and outstanding
 — 
Class A common stock, $0.0001 par value; 900,000,000 shares authorized; 52,847,195 shares and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
5 — 
Class B common stock, $0.0001 par value; 190,000,000 shares authorized; 62,281,735 shares and no shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
6 — 
Additional paid in capital
 — 
Accumulated deficit
(436,461)— 
Total Stockholders' Equity
(436,450)— 
Nonredeemable noncontrolling interests
127 717 
Total Equity
(436,323)31,491 
Total Liabilities, Redeemable Noncontrolling Interests and Equity
$1,387,245 $74,281 

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Condensed Statements of Operations
(Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
(in thousands, except shares and per share data)
2021202020212020
Revenues and Other Income




Energy revenue
$10,916 $ $13,975 $ 
Other revenue
865 1,904 4,588 4,496 
Amortization of intangibles and below-market contracts
205  205  
Total Revenue and Other Income
11,986 1,904 18,768 4,496 
Equity Investment Income, Net
879  879  
Cost of Operations
Cost of energy
9,478 52 12,625 87 
Cost of other revenues
615 1,202 2,976 2,490 
Depreciation, amortization and accretion
3,142 34 4,077 101 
Total Cost of Operations
13,235 1,288 19,678 2,678 
General and administrative expenses
9,053 1,205 20,097 3,652 
Operating Income (Loss)
(9,423)(589)(20,128)(1,834)
Other Income (Expense)
Interest expense, net
(1,586) (1,606) 
Gain (loss) on derivative contracts
(10,413) (10,413) 
Other income (expense)
81 (13)377 15 
Total Other Income (Expense)
(11,918)(13)(11,642)15 
Income (Loss) Before Income Taxes
(21,341)(602)(31,770)(1,819)
Income tax benefit
    
Net Income (Loss)
(21,341)(602)(31,770)(1,819)
Net income (loss) attributable to nonredeemable noncontrolling interests
(335)258 (589)386 
Net income (loss) attributable to Legacy Archaea(5,733)(860)(15,908)(2,205)
Net income (loss) attributable to redeemable noncontrolling interests
(8,262) (8,262) 
Net Income (Loss) Attributable to Class A Common Stock
$(7,011)$ $(7,011)$ 
Net income (loss) per Class A common share:
Net income (loss) – basic (1)
$(0.13)$ $(0.13)$ 
Net income (loss) – diluted (1)
$(0.13)$ $(0.13)$ 
Weighted average shares of Class A Common Stock outstanding:
Basic (1)
52,847,195  52,847,195  
Diluted (1)
52,847,195  52,847,195  
(1) Class A Common Stock is outstanding beginning September 15, 2021 due to the reverse recapitalization transaction as described in Note 4.

The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Equity
(Unaudited)

Total Equity


Total Stockholders' Equity
(in thousands)
Redeemable Noncontrolling
Interests
Members' Equity

Members' Accumulated Deficit
Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Nonredeemable Noncontrolling
Interests

Total
Equity
Balance - December 31, 2020
$ $34,930 

$(4,156)$ 

$ 

$ 

$ 

$717 

$31,491 
Net income (loss) prior to Closing
— — 

(15,908)— 

— 

— 

— 

(534)

(16,442)
Members' equity contributions— 70 

— — 

— 

— 

— 

— 

70 
Share-based compensation expense prior to Closing
— 2,349 

— — 

— 

— 

— 

— 

2,349 
Reclassification in connection with reverse recapitalization— (37,349)20,064 — 3 37,346 (20,064)—  
Net cash contribution from the reverse recapitalization and PIPE Financing, net of warrant liability
— — 

— 5 

1 

346,239 — 

— 

346,245 
Issuance of Class B Common Stock in Aria Merger
— — 

— — 

2 

394,908 

— 

— 

394,910 
Reclassification to redeemable noncontrolling interest
410,296 — — — — (430,360)20,064 — (410,296)
Net income (loss) after Closing(8,262)— — — — — (7,011)(56)(7,067)
Adjustment of redeemable noncontrolling interest to redemption amount777,582 — — — — (348,133)(429,450)— (777,583)
Balance - September 30, 2021
$1,179,616 $ 

$ $5 

$6 

$ 

$(436,461)

$127 

$(436,323)
Total Equity

Total Stockholders' Equity




(in thousands)
Redeemable Noncontrolling
Interests
Members' Equity
Members' Accumulated Deficit

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital(

Accumulated
Deficit

Nonredeemable Noncontrolling
Interests

Total
Equity
Balance - December 31, 2019
$ $2,470 $(1,683)

$ 

$ 

$ 

$ 

$ 

$787 
Net income (loss)
— — (2,205)

— 

— 

— 

— 

386 

(1,819)
Members' equity contributions
— 32,460 — 

— 

— 

— 

— 

— 

32,460 
Noncontrolling interest in acquired business acquisition— — — — — — — 480 480 
Balance - September 30, 2020
$ $34,930 $(3,888)

$ 

$ 

$ 

$ 

$866 

$31,908 



The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Equity
(Unaudited)

Total Equity

Total Stockholders' Equity



(in thousands)
Redeemable Noncontrolling Interests
Members' Equity
Members' Accumulated Deficit

Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Nonredeemable Noncontrolling
Interests

Total
Equity
Balance - June 30, 2021
$ $35,178 $(14,331)

$ 

$ 

$ 

$ 

$462 

$21,309 
Net income (loss) prior to Closing
— — (5,733)

— 

— 

— 

— 

(279)

(6,012)
Share-based compensation expense prior to Closing
— 2,171 — 

— 

— 

— 

— 

— 

2,171 
Reclassification in connection with reverse recapitalization— (37,349)20,064 — 3 37,346 (20,064)—  
Net cash contribution from the reverse recapitalization and PIPE Financing, net of warrant liability
— — — 

5 

1 

346,239 

— 

— 

346,245 
Issuance of Class B Common Stock in Aria Merger
— — — 

— 

2 

394,908 

— 

— 

394,910 
Reclassification to redeemable noncontrolling interest
410,296 — — 

— 

— 

(430,360)

20,064 

— 

(410,296)
Net income (loss) after Closing(8,262)— — — — — (7,011)(56)(7,067)
Adjustment of redeemable noncontrolling interests to redemption amount777,582 — — — — (348,133)(429,450)— (777,583)
Balance - September 30, 2021
$1,179,616 $ $ 

$5 

$6 

$ 

$(436,461)

$127 

$(436,323)
Total Equity

Total Stockholders' Equity




(in thousands)
Redeemable Noncontrolling InterestsMembers' Equity

Members' Accumulated Deficit
Class A
Common
Stock

Class B
Common
Stock

Additional
Paid-in
Capital

Accumulated
Deficit

Noncontrolling
Interests

Total
Equity
Balance - June 30, 2020
$ $18,220 

$(3,028)$ 

$ 

$ $ 

$608 

$15,800 
Net income (loss)
— — 

(860)— 

— 

— 

— 

258 

(602)
Members' equity contributions
— 16,710 

— — 

— 

— 

— 

— 

16,710 
Balance - September 30, 2020
$ $34,930 

$(3,888)$ 

$ 

$ 

$ 

$866 

$31,908 


The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
Consolidated Condensed Statement of Cash Flows
(Unaudited)

Nine Months Ended
September 30,
(in thousands)
2021

2020
Cash flows from operating activities



Net income (loss)
$(31,770)

$(1,819)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation, amortization and accretion expense
4,077 

101 
Amortization of debt issuance costs
627 

 
Amortization of intangibles and below-market contracts
(6)

 
Bad debt expense
10 

76 
Return on investment in equity method investments
336 

 
Equity in earnings of equity method investments
(879)

 
Change in fair value of derivative liabilities
10,413 

 
Forgiveness of Paycheck Protection Loan
(201)

 
Stock-based compensation expense
2,887 

 
Changes in operating assets and liabilities:

Accounts receivable
(692)

(1,124)
Inventory
(270)

 
Prepaid expenses and other current assets
(22,315)

(627)
Accounts payable - trade
(4,043)

(335)
Accrued and other liabilities
(7,475)

810 
Other non-current assets(3,490) 
Other long-term liabilities(1,919)98 
Net cash provided by (used in) operating activities
(54,710)

(2,820)
Cash flows from investing activities

Acquisition of Aria, net of cash acquired
(463,334)

 
Acquisition of assets and businesses, excluding Aria
(31,527)

(1,156)
Purchases of property, plant and equipment
(88,209)

(9,659)
Purchases of biogas rights
(202)

(7,892)
Contributions to equity method investments
(4,100)

 
Net cash used in investing activities
(587,372)

(18,707)
Cash flows from financing activities

Borrowings on line of credit agreement
12,478 

 
Repayments on line of credit agreement
(12,478)

 
Proceeds from long-term debt, net of issuance costs
361,959 

 
Repayments of long-term debt
(47,040)

 
Proceeds from PPP Loan
 

691 
Proceeds from reverse recapitalization and PIPE Financing
496,397 

 
Capital contributions
70 

21,150 
Distributions to noncontrolling interest
 

 
Net cash provided by financing activities
811,386 

21,841 
Net increase (decrease) in cash, cash equivalents and restricted cash
169,304 

314 
Cash, cash equivalents and restricted cash - beginning of period
1,496 

423 
Cash, cash equivalents and restricted cash - end of period
$170,800 

$737 
Supplemental cash flow information:

Cash paid for interest1
$1,869 

$ 
Non-cash investing activities:

Accruals of property, plant and equipment and biogas rights incurred but not paid
$2,317 

$1,597 
1Net of capitalized interest of $7.2 million and zero for the nine months ended September 30, 2021 and 2020, respectively.
The accompanying notes are an integral part of these consolidated financial statements.

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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1 - Organization and Description of Business
Archaea Energy Inc. ("Archaea" or the "Company"), a Delaware corporation (formerly named Rice Acquisition Corp.), 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 September 30, 2021, Archaea owns and operates a diversified portfolio of 23 LFG recovery and processing projects across 12 states, including 13 LFG to electric projects and 10 projects that produce pipeline-quality RNG.
On September 15, 2021, Archaea consummated the previously announced business combinations pursuant to (i) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Aria Merger Agreement”), by and among Rice Acquisition Corp., a Delaware corporation ("RAC"), Rice Acquisition Holdings LLC, a Delaware limited liability company and direct subsidiary of RAC (“RAC Opco”), LFG Intermediate Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Opco (“RAC Intermediate”), LFG Buyer Co, LLC, a Delaware limited liability company and direct subsidiary of RAC Intermediate (“RAC Buyer”), Inigo Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Aria Merger Sub”), Aria Energy LLC, a Delaware limited liability company (“Aria”), and Aria Renewable Energy Systems LLC, a Delaware limited liability company, pursuant to which, among other things, Aria Merger Sub was merged with and into Aria, with Aria surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Aria Merger Agreement, the “Aria Merger”), and (ii) the Business Combination Agreement, dated April 7, 2021 (as amended, the “Archaea Merger Agreement” and, together with the Aria Merger Agreement, the “Business Combination Agreements”), by and among RAC, RAC Opco, RAC Intermediate, RAC Buyer, Fezzik Merger Sub, LLC, a Delaware limited liability company and direct subsidiary of RAC Buyer (“Archaea Merger Sub”), Archaea Energy LLC, a Delaware limited liability company, and Archaea Energy II LLC, a Delaware limited liability company (“Legacy Archaea”), pursuant to which, among other things, Archaea Merger Sub was merged with and into Legacy Archaea, with Legacy Archaea surviving the merger and becoming a direct subsidiary of RAC Buyer, on the terms and subject to the conditions set forth therein (the transactions contemplated by the Archaea Merger Agreement, the “Archaea Merger” and, together with the Aria Merger, the “Business Combinations”). As further discussed in Note 4 - Business Combinations and Reverse Recapitalization, Legacy Archaea was determined to be the accounting acquirer of the Business Combinations, and Aria was the predecessor to the Company.
Archaea has retained its “up-C” structure, whereby all of the equity interests in Aria and Legacy Archaea are held by RAC Buyer, all of the equity interests in RAC Buyer are held by RAC Intermediate, all of the equity interests in RAC Intermediate are held by Opco and Archaea’s only assets are its equity interests in Opco. In connection with the consummation of the Business Combinations, Opco, or Rice Acquisition Holdings LLC was renamed LFG Acquisition Holdings LLC. In accordance with Accounting Standards Codification ("ASC") 810 - Consolidation, Opco is considered a variable interest entity ("VIE") where Archaea is the sole managing member of Opco, and therefore, the primary beneficiary. As such, Archaea consolidates Opco, and the remaining unitholders that hold economic interest directly at Opco are presented as redeemable noncontrolling interests on the Company’s financial statements.
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Opco issued additional Class A Common Units as part of the consideration in the Business Combinations. The ownership structure of Opco upon closing of the Business Combinations, which gives rise to the redeemable noncontrolling interest at Archaea, is as follows:
Equity Holder
Class A Common Units
% Interest
Archaea
52,847,195 45.9 %
Total controlling interests
52,847,195 45.9 %
Aria Holders
23,000,000 20.0 %
Legacy Archaea Holders
33,350,385 29.0 %
Sponsor, Atlas and RAC independent directors
5,931,350 5.2 %
Total redeemable noncontrolling interests
62,281,735 54.1 %
Total
115,128,930 100.0 %
NOTE 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
These unaudited, interim, consolidated condensed financial statements and notes are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and in accordance with the rules and regulations of the SEC. These unaudited interim financial statements reflect all adjustments which are, in the opinion of management, necessary to present fairly the results for the interim periods presented. The Company's accounting policies conform to US GAAP and have been consistently applied in the presentation of financial statements. The Company's consolidated condensed financial statements include all wholly-owned subsidiaries and all variable interest entities that the Company determined it is the primary beneficiary. Certain information and disclosures normally included in annual financial statements prepared in accordance with US GAAP have been condensed or omitted.
The Archaea Merger with RAC was accounted for as a reverse recapitalization with Legacy Archaea deemed the accounting acquirer, and therefore, there was no step-up to fair value of any RAC assets or liabilities and no goodwill or other intangible assets were recorded. The Aria Merger was accounted for using the acquisition method of accounting with Aria deemed to be the acquiree for accounting purposes. The Company also determined that Aria is the Company's predecessor and therefore has included the historical financial statements of Aria as predecessor beginning on page 37. The Company recorded the fair value of the net assets acquired from Aria as of the Business Combination Closing Date, and goodwill was recorded. See Note 4 - Business Combinations and Reverse Recapitalization for additional information regarding the Archaea Merger and Aria Merger.
Principles of Consolidation
The consolidated condensed financial statements include the assets, liabilities and results of operations of the Company and its consolidated subsidiaries beginning on September 15, 2021, which includes 16 days of the combined results of the businesses of Legacy Archaea and Aria as operated by the Company after the Business Combination. 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 Company has determined that Opco is a VIE and the Company is the primary beneficiary. Therefore, the Company consolidates Opco, and ownership interests of Opco not owned by the Company are reflected as redeemable noncontrolling interests due to certain redemption features. Entities that are majority-owned by Opco are consolidated. Certain investments in entities are accounted for as equity method investments and included separately in the Company's Condensed Consolidated Balance Sheet.
All intercompany balances and transactions have been eliminated.
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ARCHAEA ENERGY INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make the comparison of the Company’s consolidated condensed financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. The Company will re-evaluate its status as an emerging growth company in June 2022 and may no longer qualify as an emerging growth company.
Use of Estimates
The preparation of consolidated condensed financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as contingent assets and liabilities. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying consolidated condensed financial statements.
Noncontrolling and Redeemable Noncontrolling Interest
Noncontrolling interest represents the portion of equity ownership in subsidiaries that is not attributable to the stockholder's equity of the Company. Noncontrolling interests are initially recorded at the transaction price which is equal to their fair value, and the amount is subsequently adjusted for the proportionate share of earnings and other comprehensive income attributable to the noncontrolling interests and any dividends or distributions paid to the noncontrolling interests. Effective with the Business Combinations, noncontrolling interest includes the economic interest of Opco Class A units not owned by the Company, which has been classified as redeemable noncontrolling interest due to certain provisions that allow for cash settlement at the Company's election. See Note 4 - Business Combinations and Reverse Recapitalization.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company's own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.
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The three input levels of the fair value hierarchy are as follows:
Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset.
The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
The Company’s financial assets and liabilities are classified based on the lowest level of input that is significant for the fair value measurement. The Company reflects transfers between the three levels at the beginning of the reporting period in which the availability of observable inputs no longer justifies classification in the original level. There were no transfers between fair value hierarchy levels for the periods ended September 30, 2021 and December 31, 2020.
As of September 30, 2021 and December 31, 2020, the fair value of other financial instruments including cash and cash equivalents, prepaid expenses, accounts payable, accrued and deferred expenses approximate the carrying values because of the short-term maturity of those items. There were no changes in the methods or assumptions used in the valuation techniques by the Company during the nine months ended September 30, 2021 or the year ended December 31, 2020.
Revenue Recognition
The Company generates revenues from the production and of sales of RNG, renewable electricity generation (“Power”), and associated Environmental Attributes, as well as the performance of other landfill energy operations and maintenance (“O&M”) services. The Company also manufactures and sells customized pollution control equipment and performs associated maintenance agreement services. Based on requirements of US GAAP, a portion of revenue is accounted for under ASC 840 - Leases and a portion under ASC 606 - Revenue from Contracts with Customers. Under ASC 840, lease revenue is recognized generally upon delivery of RNG, electricity and their related renewable Environmental Attributes. Under ASC 606, revenue is recognized when (or as) the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its products or services. Based on the terms of the related sales agreements, the amounts recorded under ASC 840 as lease revenue are generally consistent with revenue recognized under ASC 606. For the nine months ended September 30, 2021, approximately 82% of revenue was accounted for under ASC 606 and 18% under ASC 840. For the nine months ended September 30, 2020, 100% of revenue was accounted for under ASC 606.
RNG

The Company’s RNG production commenced in 2021 at its Boyd County facility and has expanded with the acquisition of Aria, which at the time of the Business Combinations owned or operated nine operating RNG facilities. The Company has long-term off-take contracts with creditworthy counterparties for the sale of RNG and related Environmental Attributes. Certain long-term off-take contracts for current production are accounted for as operating leases and have no minimum lease payments. All of 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
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obligation is satisfied through the delivery of RNG to the customer, revenue is recognized. The Company receives payments from the sale of RNG production within one month after delivery.
The Company also earns revenue by selling Environmental Attributes, including RINs and LCFS credits, which are generated when producing and selling RNG for use in certain transportation markets. The majority of RINs are generated by plants for which the Company has off-take agreements to sell all of the outputs and are therefore accounted for as operating leases, and revenue is recognized when the RNG is produced and the RNG and associated RIN is transferred to a third party. The remaining RIN and LCFS sales were under short-term contracts, and revenue is recognized when the RIN or LCFS is transferred to a third party.
Power
The Company’s Power production commenced in April 2021 following the acquisition of PEI Power LLC ("PEI") and has expanded as a result of the acquisition of Aria, which at the time of the Business Combinations owned or operated twelve operating landfill gas to electric facilities. A significant portion of the electricity generated is sold and delivered under the terms of Power Purchase Agreements (“PPAs”) or other contractual arrangements. Revenue is recognized based upon the amount of electricity delivered at rates specified under the contracts. Certain PPAs are accounted for as operating leases and have no minimum lease payments. All of the rental income under these leases is recorded as revenue when the electricity is delivered. Power not covered by PPAs is typically sold under a market-based contract with a regional transmission organization or in the wholesale markets. When the performance obligation is satisfied through the delivery of Power to the customer, revenue is recognized. The Company receives payments from the sale of power production within one month after delivery.
Another portion of electricity is also sold through energy wholesale markets (NYISO, ISO-NE, and PJM) into the day-ahead market. Revenue is recognized based upon the amount of electricity delivered into the day-ahead market and the day-ahead market’s clearing prices.
The Company also sells capacity into the month-ahead and three-year ahead markets in the wholesale markets noted above. Capacity revenues are recognized when contractually earned and consist of revenues billed to a third party at a negotiated contract price for making installed generation capacity available to satisfy system integrity and reliability requirements.
The Company also earns revenue by selling RECs, which are generated when producing and selling Power generated from renewable energy. For REC sales that are under contracts independent from Power sales, revenue is recognized when the REC is transferred to a third party. For REC sales that are bundled with Power sales, revenue is recognized at the time Power is produced when an active market and a sales agreement exist for the RECs.
Operation and Maintenance (“O&M”)
The Company also generates revenues by providing O&M services at projects owned by third parties which are also included in Energy revenue. In addition, the Company also provides O&M services at projects owned by its equity method investment, Mavrix, LLC ("Mavrix"). Revenue for these services is recognized upon the services being provided following contractual arrangements primarily based on the production of RNG or Power from the project.
Equipment and Associated Services
The Company’s performance obligations related to the sales of equipment are satisfied over time because the Company’s performance under each customer contract produces 1) an asset with no alternative future use to the entity, because each products solution is customized to the specific needs of each customer and 2) the Company has an enforceable right to payment under the customer termination provisions for convenience. The Company measures progress under these arrangements using an input method based on costs incurred.
The Company’s performance obligations related to the sales of the associated services are satisfied over time because the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it performs. The Company elected to recognize the sales of the associated services using the “right-to-invoice” practical expedient.
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See Note 5 - Revenues for further discussion.
Business Combinations
For business combinations that meet the accounting definition of a business, the Company determines and allocates the purchase price of an acquired company to the tangible and intangible assets acquired, the liabilities assumed and noncontrolling interest, if applicable, as of the date of acquisition at fair value. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two. In the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and can include estimates of future biogas production, commodity prices, operating and development costs, and a risk-adjusted discount rate. Revenues and costs of the acquired companies are included in the Company's operating results from the date of acquisition.
The Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, and these estimates and assumptions are inherently uncertain and subject to refinement during the measurement period not to exceed one year from the acquisition date. As a result, any adjustment identified subsequent to the measurement period is included in operating results in the period in which the amount is determined. The Company’s acquisitions are discussed in Note 4 - Business Combinations and Reverse Recapitalization.