Leases (Notes)

3 Months Ended

Jan. 31, 2020

Leases [Abstract]

Lesses

LEASES

Adoption of ASC 842

As discussed in Note 1, on November 1, 2019, the Company adopted the provisions of ASC 842 using the modified retrospective approach and elected the option to apply the transition provisions at adoption date instead of the earliest period presented in the financial statements. Due to this election, the Company is not required to retrospectively apply the standard to previous periods presented. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of approximately $692,000 and $1,373,000, operating leases and finance leases, respectively. The adoption did not have a significant impact on the Company’s statement of operations.

The Company leases rail cars for its facility to transport dried distillers grains to its end customers. We classified these identified assets as operating leases after assessing the terms under lease classification guidance.

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for each individual lease is the Company's estimated incremental borrowing rate. An incremental borrowing rate of 5.50% was utilized for each of the Company's leases.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s operating and finance leases have remaining lease terms of approximately 5 years and 10 years, respectively. These leases include options to extend the lease when it is reasonably certain the Company will exercise those options. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2020:

Operating Lease For the Period Ending January 31,	Operating Leases			Finance Leases
2021	$	168,480		$	178,800
2022	168,480			178,800
2023	168,480			178,800
2024	168,480			178,800
2025	70,200			178,800
Thereafter	—			849,300
Totals	744,120			1,743,300
Amount representing interest	(84,819		)	(396,301		)
Operating lease liability	$	659,301		$	1,346,999

Lease Cost	Three Months ended January 31, 2020
Operating lease cost	$	42,120
Finance lease cost
Amortization of leased assets	34,323
Interest on lease liabilities	18,759
Net lease cost	$	95,202

Lesses

LEASES

Adoption of ASC 842

As discussed in Note 1, on November 1, 2019, the Company adopted the provisions of ASC 842 using the modified retrospective approach and elected the option to apply the transition provisions at adoption date instead of the earliest period presented in the financial statements. Due to this election, the Company is not required to retrospectively apply the standard to previous periods presented. This adoption resulted in the Company recognizing initial right of use assets and lease liabilities of approximately $692,000 and $1,373,000, operating leases and finance leases, respectively. The adoption did not have a significant impact on the Company’s statement of operations.

The Company leases rail cars for its facility to transport dried distillers grains to its end customers. We classified these identified assets as operating leases after assessing the terms under lease classification guidance.

The Company has a contract for use of a natural gas pipeline which transports natural gas from the Northern Natural Gas pipeline to the Company’s facility. This natural gas line has no alternate use and is specifically for the benefit of the Company. The contract has minimum volume requirements as well as a fixed monthly fee. This contract meets the definition of a lease and is classified as a finance lease. Right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The discount rate used in determining the lease liability for each individual lease is the Company's estimated incremental borrowing rate. An incremental borrowing rate of 5.50% was utilized for each of the Company's leases.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s operating and finance leases have remaining lease terms of approximately 5 years and 10 years, respectively. These leases include options to extend the lease when it is reasonably certain the Company will exercise those options. The Company does not have lease arrangements with residual value guarantees, sale leaseback terms or material restrictive covenants.

The following table summarizes the remaining maturities of the Company’s operating and finance lease liabilities as of January 31, 2020:

Operating Lease For the Period Ending January 31,	Operating Leases			Finance Leases
2021	$	168,480		$	178,800
2022	168,480			178,800
2023	168,480			178,800
2024	168,480			178,800
2025	70,200			178,800
Thereafter	—			849,300
Totals	744,120			1,743,300
Amount representing interest	(84,819		)	(396,301		)
Operating lease liability	$	659,301		$	1,346,999