FINANCING RECEIVABLES AND OPERATING LEASES

3 Months Ended

Jun. 30, 2017

FINANCING RECEIVABLES AND OPERATING LEASES [Abstract]

FINANCING RECEIVABLES AND OPERATING LEASES

3. FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist of assets that we finance for our customers, which we manage as a portfolio of investments. Equipment financed for our customers is accounted for as investments in direct financing, sales-type or operating leases in accordance with Accounting Standards Codification (“ASC”) Topic 840, 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):

June 30, 2017	Notes Receivables			Lease-Related Receivables			Total Financing Receivables
Minimum payments	$	51,091		$	57,155		$	108,246
Estimated unguaranteed residual value (1)		-			17,972			17,972
Initial direct costs, net of amortization (2)		452			389			841
Unearned income		-			(5,988	)		(5,988	)
Reserve for credit losses (3)		(480	)		(716	)		(1,196	)
Total, net	$	51,063		$	68,812		$	119,875
Reported as:
Current	$	33,586		$	27,786		$	61,372
Long-term		17,477			41,026			58,503
Total, net	$	51,063		$	68,812		$	119,875

(1) Includes estimated unguaranteed residual values of $12,724 thousand for direct financing leases, which have been sold and accounted for as sales.

(2) Initial direct costs are shown net of amortization of $371 thousand.

(3) For details on reserve for credit losses, refer to Note 5, “Reserves for Credit Losses.”

March 31, 2017	Notes Receivables			Lease-Related Receivables			Total Financing Receivables
Minimum payments	$	48,524		$	57,872		$	106,396
Estimated unguaranteed residual value (1)		-			18,273			18,273
Initial direct costs, net of amortization (2)		279			341			620
Unearned income		-			(5,913	)		(5,913	)
Reserve for credit losses (3)		(3,434	)		(679	)		(4,113	)
Total, net	$	45,369		$	69,894		$	115,263
Reported as:
Current	$	23,780		$	27,876		$	51,656
Long-term		21,589			42,018			63,607
Total, net	$	45,369		$	69,894		$	115,263

(1) Includes estimated unguaranteed residual values of $12,677 thousand for direct financing leases which have been sold and accounted for as sales.

(2) Initial direct costs are shown net of amortization of $510 thousand.

(3) For details on reserve for credit losses, refer to Note 5, “Reserves for Credit Losses.”

OPERATING LEASES—NET

Operating leases—net represents leases that do not qualify as direct financing leases. The components of the operating leases—net are as follows (in thousands):

	June 30, 2017			March 31, 2017
Cost of equipment under operating leases	$	16,836		$	16,725
Accumulated depreciation		(8,518	)		(8,449	)
Investment in operating lease equipment—net (1)	$	8,318		$	8,276

(1) These totals include estimated unguaranteed residual values of $2,075 thousand and $1,117 thousand as of June 30, 2017 and March 31, 2017, respectively.

TRANSFERS OF FINANCIAL ASSETS

We enter into arrangements to transfer the contractual payments due under financing receivables and operating lease agreements, which are accounted for as sales or secured borrowings in accordance with Codification Topic 860, Transfers and Servicing. For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of June 30, 2017 and March 31, 2017, we had financing receivables of $40.1 million and $33.1 million, respectively, and operating leases of $7.1 million and $6.6 million, respectively, which were collateral for non-recourse notes payable. See Note 7, "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 are presented within net sales in the consolidated statement of operations. During the three months ended June 30, 2017 and 2016, we recognized net gains of $2.3 million and $1.5 million, respectively, and total proceeds from these sales were $85.8 million and $54.2 million, respectively.

For certain assignments of financial assets, we retain a servicing obligation. For assignments accounted for as sales, we allocate a portion of the proceeds to deferred revenues, which is recognized as we perform the services. As of both June 30, 2017 and March 31, 2017, we had deferred revenue of $0.5 million for servicing. In a limited number of such sales, we indemnified the assignee in the event that the lessee elected to early terminate the lease. As of June 30, 2017, our maximum potential future payments related to such guarantees is $0.8 million. We believe the possibility of making any payments to be remote.