Note 17 —Leases

New Lease Accounting Standard (Topic 842)

On January 1, 2019, the Company adopted the new lease accounting standard (see Note 1 for more information on the standard and the effect of the adoption) whereby leases are now classified as either operating leases or finance leases. The Company’s operating leases are comprised of real estate for fueling stations, office spaces, warehouses, a LNG liquefaction plant, and office equipment, and its finance leases are comprised of vehicles.

At the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. The commencement date of the contract is the date the lessor makes the underlying asset available for use by the lessee.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term and lease liabilities represent obligations to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the net present value of fixed lease payments over the lease term. ROU assets also include any initial direct costs and advance lease payments made and exclude lease incentives. Lease liabilities also include terminal purchase options when deemed reasonably certain to exercise. The Company’s lease term includes options to extend when it is reasonably certain that it will exercise that option. The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a term of 12 months or less; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

As most of the Company’s operating leases do not have an implicit rate that can be readily determined, the Company uses its secured incremental borrowing rate for the same term as the underlying lease based on information available at lease commencement. For finance leases, the Company uses the rate implicit in the lease.

The lease classification affects the expense recognition on the consolidated statements of operations. Operating lease charges are recorded in “Cost of sales, exclusive of depreciation and amortization,” and “Selling, general and administrative” expense. Finance lease charges are split, whereby depreciation on assets under finance leases is recorded in “Depreciation and amortization” expense and an implied interest component is recorded in “Interest expense.” The expense recognition for operating leases and finance leases is substantially consistent with legacy accounting.

The Company leased office space from the estate of T. Boone Pickens in Dallas, Texas. The Company incurred rent expense of $0.1 million in each of the years ended December 31, 2017, 2018 and 2019. The lease expired in October 2019.

NG Advantage has provided residual value guarantees on leases of certain vehicles aggregating $1.4 million to the lessors. NG Advantage expects to owe these amounts in full and therefore they have been included in the measurement of the lease liabilities and ROU assets.

Certain of the Company’s real estate leases contain variable lease payments, including payments based on a change in the index or gasoline gallon equivalents of natural gas dispensed at fueling stations. These variable lease payments cannot be determined at the commencement of the lease, are not included in the ROU assets and lease liabilities, and are recorded as a period expense when incurred.

Lessee Accounting

As of December 31, 2019, the Company’s finance and operating lease asset and liability balances were as follows (in thousands):


	2019
Finance leases:
Land, property and equipment, gross	$	5,177
Accumulated depreciation		(2,134)
Land, property and equipment, net	$	3,043

Current portion of finance lease obligations	$	615
Long-term portion of finance lease obligations		2,715
Total finance lease liabilities	$	3,330

Operating leases:
Operating lease right-of-use assets (1)	$	28,627

Current portion of operating lease obligations	$	3,359
Long-term portion of operating lease obligations		26,206
Total operating lease liabilities	$	29,565

The Company’s operating lease ROU assets are comprised of the following (in thousands):


	December 31, 2019
	Assets		Liabilities
Real estate for fueling stations	$	17,978	$	17,978
LNG plant, office spaces and warehouses		10,624		11,562
Office equipment		25		25
Total operating lease right-of-use assets	$	28,627	$	29,565

The components of lease expense for finance and operating leases consisted of the following (in thousands):


	Year Ended
	December 31, 2019
Finance leases:
Depreciation on assets under finance leases	$	498
Interest on lease liabilities		189
Total finance leases expense	$	687

Operating leases:
Lease expense	$	6,630
Lease expense on short-term leases		1,950
Variable lease expense		2,755
Sublease income		(206)
Total operating leases expense	$	11,129

Supplemental information on finance and operating leases is as follows (dollars in thousands):


	Year Ended
	December 31, 2019
Operating cash outflows from finance leases	$	189
Operating cash outflows from operating leases	$	5,350
Financing cash outflows from finance leases	$	1,667

Assets obtained in exchange for new finance lease liabilities (1)	$	519
ROU assets obtained in exchange for operating lease liabilities (1)	$	31,861


		December 31, 2019
Weighted-average remaining lease term - finance leases		4.49 years
Weighted-average remaining lease term - operating leases		11.10 years

Weighted-average discount rate - finance leases		5.09%
Weighted-average discount rate - operating leases		8.29%

(1)

These amounts are excluded from the accompanying consolidated statements of cash flows as they are non-cash investing and financing activities.

The following schedule represents the Company’s maturities of finance and operating lease liabilities as of December 31, 2019 (in thousands):


	Finance Leases		Operating Leases
Fiscal year:
2020	$	767	$	5,484
2021		679		4,658
2022		560		3,736
2023		462		3,712
2024		1,026		3,704
Thereafter		314		25,208
Total minimum lease payments		3,808		46,502
Less amount representing interest		(478)		(16,937)
Present value of lease liabilities	$	3,330	$	29,565

Lessor Accounting

The Company leases fueling station equipment to customers that contain an option to extend and an end-of-term purchase option. Receivables from these leases are accounted for as finance leases, specifically sales-type leases, and are included in “Other receivables” and “Notes receivable and other long-term assets, net” in the accompanying consolidated balance sheets.

The Company recognizes the net investment in the lease as the sum of the lease receivable and the unguaranteed residual value, both of which are measured at the present value using the interest rate implicit in the lease.

During the year ended December 31, 2019, the Company recognized $0.1 million in “Interest income” on its lease receivables.

The following schedule represents the Company’s maturities of lease receivables as of December 31, 2019 (in thousands):


Fiscal year:
2020	$	186
2021		186
2022		186
2023		186
2024		186
Thereafter		1,054
Total minimum lease payments		1,984
Less amount representing interest		(935)
Present value of lease receivables	$	1,049

Legacy Lease Disclosures (Topic 840)

As required by the new lease accounting standard, certain legacy lease disclosures are provided below as of December 31, 2018, prior to adoption of the new standard.

Operating Lease Commitments

The Company leases facilities, including the land for its LNG production plant in Boron, California and certain equipment under noncancelable operating leases expiring at various dates through 2038. If a lease has a fixed and determinable escalation clause, or periods of rent holidays, the difference between rental expense and rent paid is included in “Accrued liabilities” and “Other long-term liabilities” in the accompanying condensed consolidated balance sheets.

The following schedule represents the Company’s future minimum lease obligations under all noncancelable operating leases as of December 31, 2018 (in thousands):


Fiscal year:
2019	$	6,340
2020		4,332
2021		3,311
2022		2,409
2023		2,300
Thereafter		13,214
Total future minimum lease payments	$	31,906

Rent expense totaled $6.6 million for the year ended December 31, 2018.

Capital Lease Obligations and Receivables

The Company leases equipment under capital leases with a weighted-average interest rate of 4.48%. As of December 31, 2018, future payments under these capital leases were as follows (in thousands):


Fiscal year:
2019	$	883
2020		742
2021		656
2022		540
2023		529
Thereafter		1,868
Total minimum lease payments		5,218
Less amount representing interest		(749)
Capital lease obligations		4,469
Less current portion		(693)
Capital lease obligations, less current portion	$	3,776

The value of the equipment under capital leases as of December 31, 2018 was $6.1 million, with related accumulated amortization of $1.8 million.

The Company also leases certain fueling station equipment to a certain customer under a sales-type lease at an interest rate of 13.5%.

As of December 31, 2018, future receipts under this lease were as follows (in thousands):


Fiscal year:
2019	$	186
2020		186
2021		186
2022		186
2023		186
Thereafter		1,240
Capital lease receivables		2,170
Less amount representing interest		(1,080)
Capital lease receivables, less current portion	$	1,090