Note 9 - Leases, Right-of-use Assets and Related Liabilities

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

9. Leases, Right-of-Use Assets and Related Liabilities

The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in  January 2029. The lease does not contain an option to extend the lease that is reasonably certain to be exercised. The Company also leases certain equipment under an operating lease at its Agri-Energy Facility that expires in 2025. All other operating leases qualified for the short-term scope exemption elected by the Company. The Company recognizes rent expense on its operating lease on a straight-line basis. The Company has elected the practical expedient to not separate lease components from non-lease components for these asset classes. 

The Company also has four finance leases for land and fuel supply under arrangements related to Gevo RNG. Under these contracts, the Company leases land from dairy farmers on which it is building three anaerobic digesters, related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas will be transported from the three digester sites to a central gas upgrade system located at the fourth site that will upgrade the biogas to pipeline quality natural gas for sale. These leases expire at various dates between 2031 and 2050. Certain leases provide the Company with the right to terminate the lease prior to the stated lease expiration date; however, the Company is reasonably certain not to exercise such termination right and thus periods beyond this termination right have been recognized as part of the Company’s right-of-use assets and lease liabilities. In addition, some of these leases include renewal periods that have been deemed to be reasonably certain to be exercised and as such have been recognized as part of the Company’s right-of-use assets and lease liabilities. The Company has elected the practical expedient to not separate lease components from non-lease components for this dairy lease asset class and therefore, all amounts paid to the lessor under these arrangements for cow manure and nonlease services are classified as lease payments and included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient.

As of December 31, 2021 and 2020, right-of-use assets under operating and financing leases, operating and financing leases liabilities are included in the Consolidated Balance Sheets as follows:

	December 31,
	2021		2020
Right-of-Use Assets
Operating leases	$	2,414	$	133
Financing leases		27,297		176
Total	$	29,711	$	309
Operating Lease Liabilities
Current	$	772	$	172
Long-term		1,902		—
Total	$	2,674	$	172
Financing Lease Liabilities
Current	$	3,413	$	10
Long-term		17,797		162
Total	$	21,210	$	172

The Company leased its grain bins in Luverne, Minnesota in October 2020 through a short-term operating lease agreement which expired in July 2021. Rental income for the years ended December 31, 2021, 2020 and 2019 totaled $0.2 million, $0.1 million and $0, respectively.

GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

The following table presents the (i) costs by lease category and (ii) other quantitative information relating to the Company’s leases for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	Years Ended December 31,
	2021		2020		2019
Lease cost
Financing lease cost
Amortization of right-of-use assets (1)	$	1,396	$	5	$	—
Interest on lease liabilities (2)		906		—		—
Operating lease cost		240		605		1,554
Short-term lease cost		1,378		307		66
Variable lease cost (3)		260		144		119
Total lease cost	$	4,180	$	1,061	$	1,739

(1)	Amortization of right-of-use assets of $1.4 million was capitalized as part of "Construction in progress" during the year ended December 31, 2021 ($0 during the years ended December 31, 2020 and 2019) and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction.
(2)	Interest on lease liabilities of $0.9 million was capitalized as part of "Construction in progress" during the year ended December 31, 2021 (none during the years ended December 31, 2020 and 2019) and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction.
(3)	Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our Gevo RNG leases based on the number of cows maintained by the owners of the respective facilities.

	Years Ended December 31,
	2021			2020			2019
Other Information
Cash paid for the measurement of lease liabilities
Operating cash flows from finance lease	$	906		$	6		$	—
Operating cash flows from operating leases		240			605			1,554
Finance cash flows from finance lease		7,189			2			—
Right-of-use asset obtained in exchange for new finance lease liabilities		28,514			—			—
Right-to-use assets obtained in exchange for new operating lease liabilities		2,593			192			280
Weighted-average remaining lease term, financing lease (months)		219			224			—
Weighted-average remaining lease term, operating leases (months)		70			7			21
Weighted-average discount rate - financing lease (4)		5	%		13	%		—	%
Weighted-average discount rate - operating leases (5)		5	%		12	%		12	%

(4)	The discount rate used for the finance lease was based on the Company's incremental borrowing rate at the date the Company entered into the lease. The Company estimated the incremental borrowing rate based on collateralized borrowings for similar terms and payments.
(5)	The discount rate used for operating leases is based on the Company's incremental borrowing rate at the date the Company entered into the lease. The Company estimated the incremental borrowing rate based on collateralized borrowings for similar terms and payments.

GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

The table below shows the future minimum payments under financing leases and non-cancelable operating leases as of  December 31, 2021 (in thousands):

Year Ending December 31,	Financing Leases			Operating Leases			Total
2022	$	4,397		$	881		$	5,278
2023		1,713			528			2,241
2024		1,729			305			2,034
2025		1,743			315			2,058
2026		1,759			324			2,083
Thereafter		19,814			706			20,520
Total		31,155			3,059			34,214
Less: Amounts representing present value discounts		(9,945	)		(385	)		(10,330	)
Total lease liabilities		21,210			2,674			23,884
Less: current portion		(3,413	)		(772	)		(4,185	)
Long-term portion	$	17,797		$	1,902		$	19,699