| FINANCING RECEIVABLES AND OPERATING LEASES |
| 2. | FINANCING RECEIVABLES AND OPERATING LEASES |
Our notes receivable, investments in leases, and leased equipment consist of assets that we financed for our customers, which we manage as a portfolio of investments. Our leases to our customers are accounted for as investments in direct financing, sales-type or operating leases in accordance with Codification Topic, Leases. We also finance third-party software, maintenance, and services for our customers, which are classified as notes receivables. Our notes receivables are interest bearing and are often due over a period of time that corresponds with the terms of the leased products.
FINANCING RECEIVABLES—NET
Our financing receivables, net consist of the following (in thousands):
September 30, 2014 | | Notes Receivables | | | Lease-Related Receivables | | | Total Financing Receivables | | Minimum payments | | $ | 59,745 | | | $ | 86,289 | | | $ | 146,034 | | Estimated unguaranteed residual value (1) | | | - | | | | 8,184 | | | | 8,184 | | Initial direct costs, net of amortization (2) | | | 409 | | | | 528 | | | | 937 | | Unearned income | | | - | | | | (6,444 | ) | | | (6,444 | ) | Reserve for credit losses (3) | | | (3,673 | ) | | | (1,004 | ) | | | (4,677 | ) | Total, net | | $ | 56,481 | | | $ | 87,553 | | | $ | 144,034 | | Reported as: | | | | | | | | | | | | | Current | | $ | 27,043 | | | $ | 37,606 | | | $ | 64,649 | | Long-term | | | 29,438 | | | | 49,947 | | | | 79,385 | | Total, net | | $ | 56,481 | | | $ | 87,553 | | | $ | 144,034 | |
| (1) | Includes estimated unguaranteed residual values of $3,287 thousand for direct financing leases, which have been sold and accounted for as sales under Codification Topic Transfers and Servicing. |
| (2) | Initial direct costs are shown net of amortization of $548 thousand. |
| (3) | For details on reserve for credit losses, refer to Note 4, “Reserves for Credit Losses.” |
March 31, 2014 | | Notes Receivables | | | Lease-Related Receivables | | | Total Financing Receivables | | Minimum payments | | $ | 43,707 | | | $ | 81,551 | | | $ | 125,258 | | Estimated unguaranteed residual value (1) | | | - | | | | 8,275 | | | | 8,275 | | Initial direct costs, net of amortization (2) | | | 354 | | | | 537 | | | | 891 | | Unearned income | | | - | | | | (6,285 | ) | | | (6,285 | ) | Reserve for credit losses (3) | | | (3,364 | ) | | | (1,024 | ) | | | (4,388 | ) | Total, net | | $ | 40,697 | | | $ | 83,054 | | | $ | 123,751 | | Reported as: | | | | | | | | | | | | | Current | | $ | 22,109 | | | $ | 35,640 | | | $ | 57,749 | | Long-term | | | 18,588 | | | | 47,414 | | | | 66,002 | | Total, net | | $ | 40,697 | | | $ | 83,054 | | | $ | 123,751 | |
| (1) | Includes estimated unguaranteed residual values of $3,034 thousand for direct financing leases which have been sold and accounted for as sales under Codification Topic Transfers and Servicing. |
| (2) | Initial direct costs are shown net of amortization of $525 thousand. |
| (3) | For details on reserve for credit losses, refer to Note 4, “Reserves for Credit Losses.” |
OPERATING LEASES—NET Operating leases—net primarily represents leases that do not qualify as direct financing leases. The components of the operating leases—net are as follows (in thousands):
| | | September 30, 2014 | | | March 31, 2014 | | Cost of equipment under operating leases | | $ | 31,072 | | | $ | 40,513 | | Accumulated depreciation | | | (15,674 | ) | | | (20,525 | ) | Investment in operating lease equipment—net (1) | | $ | 15,398 | | | $ | 19,988 | |
| (1) | These totals include estimated unguaranteed residual values of $3,842 thousand and $5,610 thousand as of September 30, 2014 and March 31, 2014, respectively. |
TRANSFERS OF FINANCIAL ASSETS
We enter into arrangements to transfer the contractual payments due under financing receivables and operating leases, which are accounted for as sales or secured borrowings in accordance with Codification Topic, Transfers and Servicing. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of September 30, 2014 and March 31, 2014, we had financing receivables and operating leases of $72.8 million and $72.3 million, respectively, that were collateral for non-recourse notes payable. See Note 6, “Notes Payable and Credit Facility.”
For transfers accounted for as sales, we derecognize the carrying value of the asset transferred and recognize a net gain or loss on the sale, which is presented within financing revenues in the unaudited condensed consolidated statement of operations. During the three months ended September 30, 2014 and 2013, we recognized net gains of $0.9 million and $1.2 million, respectively. The fair value of assets received from these sales was $37.6 million and $34.9 million for the three months ended September 30, 2014 and 2013, respectively. During the six months ended September 30, 2014 and 2013, we recognized net gains of $3.2 million and $5.6 million, respectively. The fair value of assets received from these sales was $93.8 million and $122.4 million for the six months ended September 30, 2014 and 2013, respectively. |