FINANCING RECEIVABLES AND OPERATING LEASES

9 Months Ended

Dec. 31, 2019

FINANCING RECEIVABLES AND OPERATING LEASES [Abstract]

FINANCING RECEIVABLES AND OPERATING LEASES

4. FINANCING RECEIVABLES AND OPERATING LEASES

Our financing receivables and operating leases consist primarily of leases of IT and communication equipment and notes receivable from financing customer purchases of third-party software, maintenance, and services. Our leases often include elections for the lessee to purchase the underlying asset at the end of the lease term. Occasionally, our leases provide the lessee a bargain purchase option. We classify leases as either sales-type or operating lease in accordance with Codification Topic 842.

The following table provides the profit recognized for sales-type leases at their commencement date for the three and nine months ended December 31, 2019 (in thousands):

	Three months ended December 31, 2019		Nine months ended December 31, 2019
Net sales	$	5,710	$	13,697
Cost of sales		4,807		11,459
Gross Profit	$	903	$	2,238

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and nine months ended December 31, 2019 (in thousands):

	Three months ended December 31, 2019		Nine months ended December 31, 2019
Interest Income on sales-type leases	$	1,272	$	4,862
Lease income on operating leases	$	4,489	$	14,908

FINANCING RECEIVABLES—NET

Our financing receivables - net consist of the following (in thousands):

December 31, 2019	Notes Receivables			Lease-Related Receivables			Total Financing Receivables
Minimum payments	$	60,234		$	81,450		$	141,684
Estimated unguaranteed residual value (1)		-			21,073			21,073
Initial direct costs, net of amortization (2)		297			319			616
Unearned income		-			(11,937	)		(11,937	)
Reserve for credit losses (3)		(788	)		(642	)		(1,430	)
Total, net	$	59,743		$	90,263		$	150,006
Reported as:
Current	$	41,350		$	47,879		$	89,229
Long-term		18,393			42,384			60,777
Total, net	$	59,743		$	90,263		$	150,006

(1) Includes estimated unguaranteed residual values of $15,883 thousand for sales type leases, which have been sold and accounted for as sales.

(2) Initial direct costs are shown net of amortization of $299 thousand.

(3) For details on reserve for credit losses, refer to Note 7, “Reserves for Credit Losses.”

March 31, 2019	Notes Receivables			Lease-Related Receivables			Total Financing Receivables
Minimum payments	$	40,563		$	64,201		$	104,764
Estimated unguaranteed residual value (1)		-			14,639			14,639
Initial direct costs, net of amortization (2)		377			332			709
Unearned income		-			(7,671	)		(7,671	)
Reserve for credit losses (3)		(505	)		(530	)		(1,035	)
Total, net	$	40,435		$	70,971		$	111,406
Reported as:
Current	$	30,852		$	32,914		$	63,766
Long-term		9,583			38,057			47,640
Total, net	$	40,435		$	70,971		$	111,406

(1) Includes $8,996 thousand for the estimated residual values of sales type leases and direct financing leases for which we sold the financing assets.

(2) Initial direct costs are shown net of amortization of $275 thousand.

(3) For details on reserve for credit losses, refer to Note 7, “Reserves for Credit Losses.” 

Future scheduled minimum lease payments for investments in sales-type leases as of December 31, 2019 are as follows (in thousands):

Remainder of year ending March 31, 2020	$	36,224
Year ending March 31, 2021		23,059
Year ending March 31, 2022		13,728
Year ending March 31, 2023		5,946
Year ending March 31, 2024 and thereafter		2,492
Total	$	81,449

OPERATING LEASES—NET

Operating leases - net represents leases that do not qualify as sales-type leases. The components of the operating leases - net are as follows (in thousands):

	December 31, 2019			March 31, 2019
Cost of equipment under operating leases	$	24,692		$	21,532
Accumulated depreciation		(11,963	)		(10,139	)
Investment in operating lease equipment—net (1)	$	12,729		$	11,393

(1) These totals include estimated unguaranteed residual values of $3.2 million and $2.9 million as of December 31, 2019 and March 31, 2019, respectively.

Future scheduled minimum lease rental payments as of December 31, 2019 are as follows (in thousands):

Remainder of year ending March 31, 2020	$	1,476
Year ending March 31, 2021		4,380
Year ending March 31, 2022		2,961
Year ending March 31, 2023		1,626
Year ending March 31, 2024 and thereafter		443
Total	$	10,886

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.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of December 31, 2019, and March 31, 2019, we had financing receivables of $62.5 million and $50.2 million, respectively, and operating leases of $8.5 million and $7.8 million, respectively, which were collateral for non-recourse notes payable. See Note 9, "Notes Payable and Credit Facility."

For transfers accounted for as sales, we derecognize the carrying value of the asset transferred plus any liability 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 December 31, 2019 and 2018, we recognized net gains of $9.5 million and $2.4 million, and total proceeds from these sales were $246.0 million and $95.2 million respectively. For the year to date periods ended December 31, 2019 and 2018, we recognized net gains of $17.0 million and $5.0 million, respectively, and total proceeds from these sales were $414.6 million and $189.2 million, respectively.

When we retain servicing obligations in transfers 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 December 31, 2019 and March 31, 2019, we had deferred revenue of $0.4 million for servicing obligations.

In a limited number of transfers accounted for as sales, we indemnified the assignee in the event that the lessee elected to early terminate the lease.  As of December 31, 2019, our maximum potential future payments related to such guarantees is $0.3 million. We believe the likelihood of making any such payments to be remote.