Leases

9 Months Ended

Mar. 31, 2020

On July 1, 2019, the Company adopted Topic 842, Leases, using the modified retrospective transition approach. The reported results for the three and nine months ended March 31, 2020 reflect the application of Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.

The Company elected the practical expedient package permitted under the transition approach. As such, the Company did not reassess whether any expired or existing contracts are or contain leases, did not reassess historical lease classification, and did not reassess initial direct costs for any leases that existed prior to July 1, 2019.

As of the date of adoption, the Company recognized operating lease assets and liabilities of approximately $80.1 million on the Condensed Consolidated Balance Sheet. In addition, we acquired approximately $29 million of operating lease assets and liabilities through the acquisition of Finisar, which remains preliminary as discussed in Note 3.

All existing leases that were classified as capital leases under Topic 840 are classified as finance leases under Topic 842. As of the date of adoption, the Company recognized finance lease assets of $25 million in property, plant and equipment, net, with corresponding finance lease liabilities of $24 million on the Condensed Consolidated Balance Sheet.

We determine if an arrangement is a lease at inception 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 are recorded in property, plant and equipment, net, and finance lease liabilities within other current and other non-current liabilities on our Condensed Consolidated Balance Sheet. 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 Condensed Consolidated Balance Sheet. 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 short-term leases, lease term, and discount rates ($000):


	Three Months Ended March 31, 2020		Nine Months Ended March 31, 2020
Finance Lease Cost
Amortization of right-of-use Assets	$	417	$	1,250
Interest on Lease Liabilities	330		1,002
Total Finance Lease Cost	747		2,252
Operating Lease Cost	9,050		23,702
Total Lease Cost	$	9,797	$	25,954


Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating Cash Flows from Finance Leases	330		1,002
Operating Cash Flows from Operating Leases	8,454		22,449
Financing Cash Flows from Finance Leases	266		756

Weighted-Average Remaining Lease Term (in Years)
Finance Leases			11.8
Operating Leases			7.4

Weighted-Average Discount Rate
Finance Leases			5.6		%
Operating Leases			7.3		%

The following table presents future minimum lease payments, which include short-term leases ($000):