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LEASES

9 Months Ended

Sep. 30, 2020

Finance Leases

Finance leases are included in finance lease right-of-use lease assets and finance lease liability current and long-term liabilities on the unaudited consolidated balance sheets. The associated amortization expenses for the three months ended September 30, 2020 and 2019 were $101,841 and $53,121, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the three months ended September 30, 2020 and 2019

were $33,077 and $12,436, respectively, and are included in interest expense on the unaudited consolidated statements of operations. The associated amortization expense for the nine months ended September 30, 2020 and 2019 were $228,514 and $113,825, respectively, and are included in depreciation and amortization on the unaudited consolidated statements of operations. The associated interest expense for the nine months ended September 30, 2020 and 2019 were $66,014 and $30,206, respectively, and are included in interest expense on the unaudited consolidated statements of operations. Please see “Note 6. Line of Credit and Long-Term Debt” for more details.

Operating Leases

Operating leases are included in operating lease right-of-use lease assets, and operating current and long-term lease liabilities on the consolidated balance sheets. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for those payments is incurred. Lease expense for equipment is included in cost of revenues and other rents are included in selling, general and administrative expense on the consolidated statements of operations and are reported net of lease income. Lease income is not material to the results of operations for the three and nine months ended September 30, 2020 and 2019. Total operating lease costs for the three months ended September 30, 2020 and 2019 were $1.5 million and $1.6 million, respectively. Total operating lease costs, including some small leases with initial terms less than twelve months, for the nine months ended September 30, 2020 and 2019 were $4.5 million and $4.7 million, respectively.

Cash Flows

An initial right-of-use asset of $37.8 million was recognized as a non-cash asset addition with the adoption of the new lease accounting standard. Cash paid for amounts included in operating lease liabilities, including some small leases with initial terms less than twelve months was $1.6 million during the nine months ended September 30, 2020 and 2019, and is included in operating cash flows. Cash paid for amounts included in finance lease was $282,655 and $113,241 during the nine months ended September 30, 2020 and 2019, respectively, and is included in financing cash flows.

Maturities of our lease liabilities for all operating leases are as follows as of September 30, 2020:


September 30, 2020
	Facilities		Equipment		Plant		Railcar		Total
Year 1	$	710,879	$	161,539	$	4,060,417	$	897,846	$	5,830,681
Year 2	446,869		67,338		4,060,417		229,656		4,804,280
Year 3	346,733		—		4,060,417		56,712		4,463,862
Year 4	300,000		—		4,060,417		—		4,360,417
Year 5	300,000		—		4,060,417		—		4,360,417
Thereafter	2,150,000		—		30,479,594		—		32,629,594
Total lease payments	$	4,254,481	$	228,877	$	50,781,679	$	1,184,214	$	56,449,251
Less: interest	(1,510,219)		(10,024)		(20,856,360)		(58,572)		(22,435,175)
Present value of lease liabilities	$	2,744,262	$	218,853	$	29,925,319	$	1,125,642	$	34,014,076

The weighted average remaining lease terms and discount rates for all of our operating leases were as follows as of September 30, 2020:


Remaining lease term and discount rate:	September 30, 2020
Weighted average remaining lease terms (years)
Lease facilities	5.53
Lease equipment	1.42
Lease plant	12.51
Lease railcar	1.15
Weighted average discount rate
Lease facilities	9.19	%
Lease equipment	8.00	%
Lease plant	9.37	%
Lease railcar	8.00	%

Significant Judgments

Significant judgments include the discount rates applied, the expected lease terms, lease renewal options and residual value guarantees. There are several leases with renewal options or purchase options. Using the practical expedient, the Company utilized existing lease classifications as of September 30, 2020 and 2019.

The purchase options are not expected to have a material impact on the lease obligation. There are several facility and plant leases which have lease renewal options from one to twenty years.

The largest facility lease has an initial term through 2032. That lease does not have an extension option. The two plant leases both have multiple 5-year extension options for a total of 20 years. Two extension options have been included in the lease right-of-use asset and lease obligation at January 1, 2019.

The Company will reassess the lease terms and purchase options when there is a significant change in circumstances or when the Company elects to exercise an option that had previously been determined that it was not reasonably certain to do so.

LEASES