Core Scientific, Inc./tx

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the condensed consolidated financial statements.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, the unaudited interim condensed consolidated financial statements do not include all information and disclosures required by GAAP for complete annual financial statements and should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. In the opinion of management, all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair presentation have been included. All intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified for consistency with the current year presentation.

The results of the interim condensed consolidated statements of operations are not necessarily indicative of results to be expected for the year ending December 31, 2026 or for any future interim period.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Significant estimates include the useful lives of property, plant and equipment, the recoverability and fair value of long-lived assets held and used, the fair value of assets classified as held for sale, the relative fair values used to allocate consideration in asset acquisitions and the useful lives of the resulting intangible assets, the initial measurement of lease liabilities, stock-based compensation, the fair value measurement of warrants, and income taxes. These estimates are based on information available as of the date of the condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

Significant Accounting Policies

Except for the updates noted below, see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 for a detailed discussion of the Company’s significant accounting policies.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents include all cash balances and highly liquid investments, including money market funds, with original maturities of three months or less from the date of acquisition. As of September 30, 2026 and December 31, 2025, substantially all cash and cash equivalents exceeded Federal Deposit Insurance Corporation insured limits. Restricted cash as of September 30, 2026, consisted of (i) funds held in the debt service reserve account established under the indenture governing the Company’s $3.30 billion aggregate principal amount of 7.75% Senior Secured Notes due 2031 (the “Senior Secured Notes”) and (ii) funds held in escrow in connection with certain construction and development activities. The Company hadno restricted cash as of December 31, 2025.

Digital Assets

The Company’s digital assets have active markets with observable prices and are classified within Level 1 of the fair value hierarchy. The following table presents the Company’s bitcoin holdings (in thousands, except for quantity):

Long-Lived Asset Impairments

The Company tests long-lived asset groups for recoverability whenever events or changes in circumstances have occurred that may affect recoverability or the estimated useful lives. Long-lived assets include property, plant and equipment and intangible assets subject to amortization. A long-lived asset may be impaired when the estimated future undiscounted cash flows are less than the carrying amount of the asset. If that comparison indicates that the asset’s carrying value may not be recoverable, the impairment is measured based on the difference between the carrying amount and the estimated fair value of the asset. Long-lived assets to be disposed of are reported at the lower of the carrying amount or estimated fair value, less costs to sell.

Assets Held for Sale

The Company classifies a long-lived asset (disposal group) as held for sale when all of the criteria in ASC 360-10-45-9 are met. Assets held for sale are measured at the lower of carrying amount or fair value, less cost to sell and are no longer depreciated. Any initial or subsequent write-down to fair value less cost to sell is recognized as a loss on remeasurement of assets held for sale in the condensed consolidated statements of operations; a subsequent gain is recognized for any subsequent increase in fair value less cost to sell, but only to the extent of cumulative losses previously recognized. Any gain or loss not previously recognized that results from the sale is recognized at the date of sale. Assets held for sale are included within “Other current assets” in the condensed consolidated balance sheets.

Letters of Credit

Letters of credit issued under the Company's credit facilities provide credit support for certain obligations of the Company. Letters of credit are not recorded as liabilities in the condensed consolidated balance sheets unless drawn upon, at which point the Company's reimbursement obligation is recorded as a liability. See Note 7 — Debt and Note 10 — Commitments and Contingencies for additional information regarding the Company's letter of credit arrangements.

Warrants

The Company evaluates all its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The classification of derivative instruments, including whether such instruments should be classified as liabilities or as equity, is re-assessed at the end of each reporting period.

Warrants, or portions thereof, that are indexed to the Company's common stock and meet the criteria for settlement in shares of the Company's common stock, and contain no provisions that could require cash settlement or grant the holder rights superior to those of a common shareholder are classified as equity. Equity-classified warrants are initially measured at fair value, with the resulting amount recorded as a component of additional paid-in capital, and are not subsequently remeasured.

Warrants, or portions thereof, that do not meet the criteria for equity classification, including those that could require cash settlement or that are not considered indexed to the Company's own stock, are classified as liabilities. Warrant liabilities are initially measured at fair value on the issuance date and are subject to re-measurement at each balance sheet date. Changes in fair value are recognized in the condensed consolidated statements of operations within "Change in fair value of warrants and contingent value rights". When a liability-classified warrant, or portion thereof, subsequently qualifies for equity classification, it is remeasured at fair value immediately before reclassification to additional paid-in capital and is not subsequently remeasured.

For warrants issued in connection with customer lease arrangements, the Company recognizes a deferred lease incentive based on the issuance date fair value of the warrants. The warrants are issued as an incentive for the customer to enter into long-term lease arrangements, which are expected to generate future lease revenue. The deferred lease incentive is included within "Other current assets" and "Deferred lease incentive, net of current portion" in the condensed consolidated balance sheets and is amortized as a reduction of revenue over the term of the related customer leases, beginning at lease commencement.

See Note 8 — Warrants for further detail on the Company's warrant liabilities and equity-classified warrants.

Recently Adopted Accounting Standards

In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments (“ASU 2024-04”), which clarifies the accounting for certain settlements of convertible debt instruments as induced conversions versus extinguishments. The guidance is effective for fiscal years beginning after December 15, 2025. The Company adopted ASU 2024-04 as of January 1, 2026, and applies the guidance prospectively. The adoption of ASU 2024-04 did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. In January 2025, the FASB issued ASU 2025-01 to clarify the effective date of ASU 2024-03 for all public business entities. The amendments are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments should be applied prospectively; retrospective application is also permitted. The Company expects to adopt the ASU prospectively. Adoption will not affect the recognition or measurement of the Company's expenses or the expense captions presented on the face of the Company's condensed consolidated statements of operations, but will result in additional disaggregated expense information in the notes to the Company's consolidated financial statements.