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FINANCING RECEIVABLES AND OPERATING LEASES | 6 Months Ended
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Sep. 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 a 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 and six months ended September 30, 2019 (in thousands):
|  | Three months ended September 30, 2019 |  |  | Six months ended September 30, 2019 |
Net sales |  | $ | 3,133 |  |  | $ | 7,987 |
Cost of sales |  |  | 2,702 |  |  |  | 6,652 |
Gross Profit |  | $ | 431 |  |  | $ | 1,335 |
The following table provides interest income in aggregate on our sales-type leases and lease income on our operating leases for the three and six months ended September 30, 2019 (in thousands):
|  | Three months ended September 30, 2019 |  |  | Six months ended September 30, 2019 |
Interest income on sales-type leases |  | $ | 1,495 |  |  | $ | 3,590 |
Lease income on operating leases |  | $ | 5,059 |  |  | $ | 10,418 |
FINANCING RECEIVABLES—NET Our financing receivables-net consist of the following (in thousands):
September 30, 2019 |  | Notes Receivables |  |  | Lease-Related Receivables |  |  | Total Financing Receivables |
Minimum payments |  | $ | 78,483 |  |  | $ | 87,989 |  |  | $ | 166,472 |
Estimated unguaranteed residual value (1) |  |  | - |  |  |  | 20,640 |  |  |  | 20,640 |
Initial direct costs, net of amortization (2) |  |  | 644 |  |  |  | 284 |  |  |  | 928 |
Unearned income |  |  | - |  |  |  | (11,327 | ) |  |  | (11,327 | )
Reserve for credit losses (3) |  |  | (520 | ) |  |  | (500 | ) |  |  | (1,020 | )
Total, net |  | $ | 78,607 |  |  | $ | 97,086 |  |  | $ | 175,693 |
Reported as: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 59,603 |  |  | $ | 49,043 |  |  | $ | 108,646 |
Long-term |  |  | 19,004 |  |  |  | 48,043 |  |  |  | 67,047 |
Total, net |  | $ | 78,607 |  |  | $ | 97,086 |  |  | $ | 175,693 |
| (1) | Includes estimated unguaranteed residual values of $14,211 thousand for sales type leases, which have been sold and accounted for as sales.
| (2) | Initial direct costs are shown net of amortization of $393 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 September 30, 2019 are as follows (in thousands):
Remainder of Year ending March 31, 2020 |  | $ | 43,732 |
Year ending March 31, 2021 |  |  | 22,787 |
Year ending March 31, 2022 |  |  | 14,038 |
Year ending March 31, 2023 |  |  | 4,979 |
Year ending March 31, 2024 and thereafter |  |  | 2,453 |
Total |  | $ | 87,989 |
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):
|  | September 30, 2019 |  |  | March 31, 2019 |
Cost of equipment under operating leases |  | $ | 23,927 |  |  | $ | 21,532 |
Accumulated depreciation |  |  | (11,462 | ) |  |  | (10,139 | )
Investment in operating lease equipment—net (1) |  | $ | 12,465 |  |  | $ | 11,393 |
| (1) | These totals include estimated unguaranteed residual values of $3,006 thousand and $2,906 thousand as of September 30, 2019 and March 31, 2019, respectively.
Future scheduled minimum lease rental payments as of September 30, 2019 are as follows (in thousands):
Remainder of Year ending March 31, 2020 |  | $ | 2,507 |
Year ending March 31, 2021 |  |  | 3,815 |
Year ending March 31, 2022 |  |  | 2,555 |
Year ending March 31, 2023 |  |  | 1,455 |
Year ending March 31, 2024 and thereafter |  |  | 443 |
Total |  | $ | 10,775 |
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 September 30, 2019, and March 31, 2019, we had financing receivables of $85.2 million and $50.2 million, respectively, and operating leases of $8.4 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 September 30, 2019 and 2018, we recognized net gains of $4.1 million and $1.2 million, and total proceeds from these sales were $95.1 million and $47.2 million, respectively. For the year to date periods ended September 30, 2019 and 2018, we recognized net gains of $7.5 million and $2.5 million, respectively, and total proceeds from these sales were $172.0 million and $94.0 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 September 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 September 30, 2019, our maximum potential future payments related to such guarantees is $0.3 million. We believe the likelihood of making any such payments to be remote.

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