FINANCING RECEIVABLES AND OPERATING LEASES

3 Months Ended

Jun. 30, 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 at bargain purchase option. We classify leases as either sales-type or operating leases in accordance with Codification Topic 842.

The following table provides the profit recognized for sales-type leases at their commencement date for the three months ended June 30, 2019 (in thousands):

	Three months ended June 30, 2019
Net sales	$	4,854
Cost of sales		3,950
Gross Profit	$	904

The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three months ended June 30, 2019 (in thousands):

	Three months ended June 30, 2019
Interest Income on sales-type leases	$	2,095
Lease income on operating leases		5,359

FINANCING RECEIVABLES—NET

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

June 30, 2019	Notes Receivables			Lease-Related Receivables			Total Financing Receivables
Minimum payments	$	63,074		$	85,396		$	148,470
Estimated unguaranteed residual value (1)		-			18,768			18,768
Initial direct costs, net of amortization (2)		319			374			693
Unearned income		-			(10,867	)		(10,867	)
Reserve for credit losses (3)		(520	)		(512	)		(1,032	)
Total, net	$	62,873		$	93,159		$	156,032
Reported as:
Current	$	48,383		$	50,036		$	98,419
Long-term		14,490			43,123			57,613
Total, net	$	62,873		$	93,159		$	156,032

(1) Includes estimated unguaranteed residual values of $12,326 thousand for sales type leases, which have been sold and accounted for as sales.

(2) Initial direct costs are shown net of amortization of $306 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 June 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020	$	49,243
Year ending March 31, 2021		20,723
Year ending March 31, 2022		11,211
Year ending March 31, 2023		3,510
Year ending March 31, 2024 and thereafter		709
Total	$	85,396

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):

	June 30, 2019			March 31, 2019
Cost of equipment under operating leases	$	24,162		$	21,532
Accumulated depreciation		(10,678	)		(10,139	)
Investment in operating lease equipment—net (1)	$	13,484		$	11,393

(1) These totals include estimated unguaranteed residual values of $3,104 thousand and $2,906 thousand as of June 30, 2019 and March 31, 2019, respectively.

Future scheduled minimum lease rental payments as of June 30, 2019 are as follows (in thousands):

Remainder of Year ending March 31, 2020	$	3,794
Year ending March 31, 2021		3,760
Year ending March 31, 2022		2,498
Year ending March 31, 2023		1,451
Year ending March 31, 2024 and thereafter		443
Total	$	11,946

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 June 30, 2019, and March 31, 2019, we had financing receivables of $75.6 million and $50.2 million, respectively, and operating leases of $7.1 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 June 30, 2019 and 2018, we recognized net gains of $3.3 million and $1.3 million, respectively, and total proceeds from these sales were $69.9 million and $46.9 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 June 30, 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 June 30, 2019, our maximum potential future payments related to such guarantees is $0.4 million.  We believe the likelihood of making any such payments to be remote.