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Finance and Operating Leases

12 Months Ended

Jun. 30, 2020

6. Finance and Operating Leases

Finance Leases

The Company is a lessee under finance leases for student computers and peripherals under loan agreements with PNC Equipment Finance, LLC (“PNC”) and Banc of America Leasing & Capital, LLC (“BALC”). As of June 30, 2020 and 2019, the finance lease liability (“capital leases” as of June 30, 2019) was $17.9 million and $24.6 million, respectively, with lease interest rates ranging from 1.52% to 3.87%. As of June 30, 2020 and 2019, the balance of the associated right-of-use assets (“student computers” as of June 30, 2019) was $19.8 million and $19.8 million, respectively. The right-of-use asset is recorded within property and equipment, net on the consolidated balance sheets. Lease amortization expense associated with the Company’s finance leases is recorded within selling, general, and administrative expenses on the consolidated statements of operations.

Individual leases under the agreement with PNC include 36-month payment terms at varying rates, with a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases.

The Company entered into an agreement with BALC in February 2019 for $25.0 million to provide financing for its leases through December 2019 at varying rates. The Company entered into an additional $25.0 million agreement in April 2020 to provide financing for its leases through March 2021 at varying rates. In July 2020, the limit was increased from $25.0 million to $41.0 million at the same terms. Individual leases with BALC include 12-month and 36-month

payment terms, fixed rates ranging from 1.52% to 3.58%, and a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases.

The following is a summary, as of June 30, 2020 (under ASC 842) and June 30, 2019 (under ASC 840), respectively, of the present value of the net minimum lease payments under the Company’s finance leases:


	June 30,
	2020		2019

	(in thousands)

2020	$	—	$	20,070
2021		13,587		4,819
2022		2,653		340
2023		2,040		—
Total minimum payments		18,280		25,229
Less: imputed interest		(342)		(581)
Finance lease liability		17,938		24,648
Less: current portion of finance lease liability		(13,304)		(19,588)
Long-term finance lease liability	$	4,634	$	5,060

Operating Leases

The Company is a lessee under operating leases for various facilities to support the Company’s operations. As of June 30, 2020, the operating lease liability was $117.2 million. As of June 30, 2020, the balance of the associated right-of-use assets was $111.8 million. Each of the above balances as of June 30, 2020 includes the impact of Galvanize’s adoption of ASC 842 as part of the purchase price accounting which is discussed in more detail in Note 14, “Acquisitions and Investments.” Lease expense associated with the Company’s operating leases is recorded within selling, general, and administrative expenses on the consolidated statements of operations.

Individual operating leases range in terms of 1 to 11 years and expire on various dates through fiscal year 2031 and the minimum lease payments are discounted using the Company’s incremental borrowing rate of 3.86% or 2.55%.

The following is a summary as of June 30, 2020 (under ASC 842) and June 30, 2019 (under ASC 840), respectively, of the present value of the minimum lease payments under the Company’s operating leases:


	June 30,
	2020		2019

	(in thousands)

2020	$	—	$	8,441
2021		23,626		8,229
2022		22,326		6,735
2023		15,841		550
2024		14,769		137
2025		13,949		—
Thereafter		38,544		—
Total minimum payments		129,055	$	24,092
Less: imputed interest		(11,822)
Operating lease liability		117,233
Less: current portion of operating lease liability		(20,689)
Long-term operating lease liability	$	96,544

The Company is subleasing one of its facilities through June 2021, two others through May 2022 and one through July 2023. Sublease income is recorded as an offset to the related lease expense within selling, general, and administrative expenses on the consolidated statements of operations. The following is a summary as of June 30, 2020 and June 30, 2019, respectively, of the expected sublease income:


	Year Ended June 30,
	2020		2019

	(in thousands)

2020	$	—	$	930
2021		1,960		961
2022		1,496		528
2023		797		—
2024		66		—
Total sublease income	$	4,319	$	2,419

The following is a summary of the Company’s lease cost, weighted-average remaining lease term, weighted-average discount rate and certain other cash flows as it relates to its operating leases for the year ended June 30, 2020:



	June 30, 2020
	(in thousands)
Lease cost

Finance lease cost:
Amortization of right-of-use assets	$	16,740
Interest on lease liabilities		820
Operating lease cost		13,129
Short-term lease cost		1,214
Sublease income		(760)
Total lease cost	$	31,143


Other information

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(13,124)
Financing cash flows from finance leases		(27,675)
Right-of-use assets obtained in exchange for new finance lease liabilities		17,160
Right-of-use assets obtained in exchange for new operating lease liabilities		6,311
Weighted-average remaining lease term - finance leases		0.79	yrs.
Weighted-average remaining lease term - operating leases		7.15	yrs.
Weighted-average discount rate - finance leases		2.86	%
Weighted-average discount rate - operating leases		2.76	%