FINANCING RECEIVABLES AND OPERATING LEASES

9 Months Ended

Dec. 31, 2020

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.

The following table provides the profit recognized for sales-type leases at their commencement date, including modifications that are recognized on a net basis, for the three and nine months ended December 31, 2020, and 2019 (in thousands):

	Three months ended December 31,				Nine months ended December 31,
	2020		2019		2020		2019
Net sales	$	4,182	$	5,710	$	22,000	$	13,697
Cost of sales		3,362		4,807		14,091		11,459
Gross profit	$	820	$	903	$	7,909	$	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, 2020, and 2019 (in thousands):

	Three months ended December 31,				Nine months ended December 31,
	2020		2019		2020		2019
Interest income on sales-type leases	$	1,956	$	1,272	$	6,059	$	4,862
Lease income on operating leases	$	3,623	$	4,489	$	11,361	$	14,908

FINANCING RECEIVABLES—NET

The following tables provide a disaggregation of our financing receivables – net (in thousands):

December 31, 2020	Notes Receivable			Lease Receivables			Financing Receivables
Gross receivables	$	111,321		$	89,629		$	200,950
Unguaranteed residual value (1)		-			20,388			20,388
Initial direct costs, net of amortization		464			-			464
Unearned income		-			(12,133	)		(12,133	)
Reserve for credit losses (2)		(1,280	)		(1,088	)		(2,368	)
Total, net	$	110,505		$	96,796		$	207,301
Reported as:
Current	$	74,585		$	52,107		$	126,692
Long-term		35,920			44,689			80,609
Total, net	$	110,505		$	96,796		$	207,301

(1) Includes unguaranteed residual values of $12,314 thousand that we retained after selling the related lease receivable.

(2) Refer to Note 7, “Allowance for Credit Losses” for details.

March 31, 2020	Notes Receivable			Lease Receivables			Financing Receivables
Minimum payments	$	55,417		$	69,492		$	124,909
Estimated unguaranteed residual value (1)		-			21,862			21,862
Initial direct costs, net of amortization		212			247			459
Unearned income		-			(11,612	)		(11,612	)
Reserve for credit losses (2)		(798	)		(610	)		(1,408	)
Total, net	$	54,831		$	79,379		$	134,210
Reported as:
Current	$	31,181		$	38,988		$	70,169
Long-term		23,650			40,391			64,041
Total, net	$	54,831		$	79,379		$	134,210

(1) Includes unguaranteed residual values of $14,972 thousand for sales type leases, which have been sold and accounted for as sales.

(2) Refer to Note 7, “Allowance for Credit Losses” for details.

The following table provides the future scheduled minimum lease payments for investments in sales-type leases as of  December 31, 2020 (in thousands):

Remainder of the Year ending March 31, 2021	$	40,211
Year Ending March 31, 2022		24,111
Year Ending March 31, 2023		16,337
Year Ending March 31, 2024		5,992
Year Ending March 31, 2025 and thereafter		2,978
Total	$	89,629

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, 2020			March 31, 2020
Cost of equipment under operating leases	$	18,182		$	21,276
Accumulated depreciation		(11,449	)		(11,159	)
Investment in operating lease equipment—net (1)	$	6,733		$	10,117

(1) Amounts include estimated unguaranteed residual values of $2.6 million and $3.1 million as of December 31, 2020, and March 31, 2020, respectively.

The following table provides the future scheduled minimum lease rental payments for operating leases as of December 31, 2020 (in thousands):

Remainder of the Year ending March 31, 2021	$	625
Year Ending March 31, 2022		2,007
Year Ending March 31, 2023		1,456
Year Ending March 31, 2024		479
Year Ending March 31, 2025 and thereafter		37
Total	$	4,604

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.

For transfers accounted for as a secured borrowing, the corresponding investments serve as collateral for non-recourse notes payable. As of  December 31, 2020, and March 31, 2020, we had financing receivables of $69.4 million and $34.6 million, respectively, and operating leases of $4.4 million and $6.7 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, 2020, and 2019, we recognized net gains of $3.0 million and $9.5 million, respectively, and total proceeds from these sales were $67.5 million and $246.0 million, respectively. For the year to date periods ended December 31, 2020, and 2019, we recognized net gains of $10.1 million and $17.0 million, respectively, and total proceeds from these sales were $259.2 million and $414.6 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, 2020, and March 31, 2020, 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, 2020, our total potential liability that could result from these indemnities is immaterial. We believe the likelihood of making any such payments to be remote.