Leases

12 Months Ended

Jun. 30, 2022

We determine if an arrangement is a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating.

Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance leases assets are recorded in property, plant and equipment, net, and finance lease liabilities within other accrued liabilities and other liabilities on our Consolidated Balance Sheets. Finance lease assets are amortized in operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, with the interest component for lease liabilities included in interest expense and recognized using the effective interest method over the lease term.

Operating leases are recorded in other assets and operating lease liabilities, current and non-current on the Company’s Consolidated Balance Sheets. Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term.

The Company’s lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to the Company. For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred. We account for non-lease components, such as common area maintenance, as a component of the lease, and include it in the initial measurement of our lease assets and corresponding liabilities. The Company’s lease terms and conditions may include options to extend or terminate. An option is recognized when it is reasonably certain that we will exercise that option.

The Company’s lease assets also include any lease payments made and exclude any lease incentives received prior to commencement. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.

The following table presents lease costs, which include leases for arrangements with an initial term of more than 12 months, lease term, and discount rates ($000):


	Year Ended June 30, 2022			Year Ended June 30, 2021			Year Ended June 30, 2020
Finance Lease Cost
Amortization of right-of-use assets	$	1,671		$	1,667		$	1,667
Interest on lease liabilities	1,200			1,268			1,328
Total finance lease cost	2,871			2,935			2,995
Operating lease cost	36,716			37,361			32,466
Sublease income	507			1,471			368
Total lease cost	$	39,080		$	38,825		$	35,093

Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating cash flows from finance leases	1,200			1,268			1,328
Operating cash flows from operating leases	35,481			35,641			30,816
Financing cash flows from finance leases	1,290			1,152			1,026

Assets Obtained in Exchange for Lease Liabilities
Right-of-use assets obtained in acquisitions	—			13,391			29,247
Right-of-use assets obtained in exchange for new operating lease liabilities	18,161			52,839			29,458
Total assets obtained in exchange for new operating lease liabilities	18,161			66,230			58,705

Weighted-Average Remaining Lease Term (in Years)
Finance leases	9.5			10.5			11.5
Operating leases	6.6			7.0			7.2

Weighted-Average Discount Rate
Finance leases	5.6		%	5.6		%	5.6		%
Operating leases	5.7		%	6.1		%	7.3		%

The following table presents future minimum lease payments, which includes leases for arrangements with an initial term of more than 12 months ($000):


Future Years	Operating Leases		Finance Leases		Total
Year 1	$	34,062	$	2,554	$	36,616
Year 2	29,923		2,624		32,547
Year 3	24,830		2,697		27,527
Year 4	19,816		2,771		22,587
Year 5	15,532		2,847		18,379
Thereafter	47,284		13,801		61,085
Total minimum lease payments	$	171,447	$	27,294	$	198,741
Less: amounts representing interest	33,659		6,284		39,943
Present value of total lease liabilities	$	137,788	$	21,010	$	158,798

From time-to-time, the Company enters into commercial agreements with our customers that include advance payments from our customers, the cash flow from which the Company uses to fund our capital expansion. The Company determines at the inception or modification of the contract if the arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In determining if a contract contains a lease, the Company evaluates whether the contract, either explicitly or implicitly, is for the use of an identified asset and whether the customer has the right to direct the use of, and obtain substantially all of the economic benefit from, the identified asset.

The Company entered into a commercial agreement with one of our customers to produce certain engineered materials products within the Compound Semiconductors segment. We received payments of $23 million and $8 million during the years ended June 30, 2022 and 2021, respectively, which the Company used to partially fund the purchase of plant and equipment, which is recorded as a contract liability. See Note 4. Revenue from Contracts with Customers. We determined the contractual rights and obligations in the commercial agreement provide us with the substantive right to substitute alternative assets throughout the period of use and therefore the commercial agreement does not contain a lease under ASC 842.

Leases

We determine if an arrangement is a lease at inception for arrangements with an initial term of more than 12 months, and classify it as either finance or operating.

The following table presents lease costs, which include leases for arrangements with an initial term of more than 12 months, lease term, and discount rates ($000):


	Year Ended June 30, 2022			Year Ended June 30, 2021			Year Ended June 30, 2020
Finance Lease Cost
Amortization of right-of-use assets	$	1,671		$	1,667		$	1,667
Interest on lease liabilities	1,200			1,268			1,328
Total finance lease cost	2,871			2,935			2,995
Operating lease cost	36,716			37,361			32,466
Sublease income	507			1,471			368
Total lease cost	$	39,080		$	38,825		$	35,093

Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating cash flows from finance leases	1,200			1,268			1,328
Operating cash flows from operating leases	35,481			35,641			30,816
Financing cash flows from finance leases	1,290			1,152			1,026

Assets Obtained in Exchange for Lease Liabilities
Right-of-use assets obtained in acquisitions	—			13,391			29,247
Right-of-use assets obtained in exchange for new operating lease liabilities	18,161			52,839			29,458
Total assets obtained in exchange for new operating lease liabilities	18,161			66,230			58,705

Weighted-Average Remaining Lease Term (in Years)
Finance leases	9.5			10.5			11.5
Operating leases	6.6			7.0			7.2

Weighted-Average Discount Rate
Finance leases	5.6		%	5.6		%	5.6		%
Operating leases	5.7		%	6.1		%	7.3		%

The following table presents future minimum lease payments, which includes leases for arrangements with an initial term of more than 12 months ($000):


Future Years	Operating Leases		Finance Leases		Total
Year 1	$	34,062	$	2,554	$	36,616
Year 2	29,923		2,624		32,547
Year 3	24,830		2,697		27,527
Year 4	19,816		2,771		22,587
Year 5	15,532		2,847		18,379
Thereafter	47,284		13,801		61,085
Total minimum lease payments	$	171,447	$	27,294	$	198,741
Less: amounts representing interest	33,659		6,284		39,943
Present value of total lease liabilities	$	137,788	$	21,010	$	158,798